Spear Airlines employs an overbooking strategy for its New York-Houston flight. The airline is applying this strategy for a flight with 120 seats. The net revenue per ticket is $60. If the flight is overfilled (due to too few no-shows), passengers are bumped from the trip and given compensation that costs that company $240 per bumped passenger (in addition to refunding the $60 ticket). 

a. First, suppose that the number of customers who are no-shows can be modeled as a random variable that is normally distributed with a mean of 6 and a standard deviation of 2. By how many seats should Spear Airlines overbook the flight? 

b. Suppose instead that each customer has a 3% probability of missing the flight. By how many seats should Spear Airlines overbook the flight? You may assume that the no-show probability only applies to 120 passengers, not 120 plus the number overbooked.

Answer rating: 100% (QA)

a To determine how many seats Spear Airlines should overbook the flight by we need to calculate the expected number of noshows and compare it to the n... View the full answer