Question: We extend our two - class model to the setting where some of the rejected low - fare customers seek to purchase high - fare
We extend our twoclass model to the setting where some of the rejected lowfare customers seek to purchase highfare tickets. We have a total capacity C Let f and f be the price of the lowfare and highfare tickets. Let the random variables D and D capture the lowfare and highfare demands. Assume that D and D are independent. To model the opportunity to sell highfare tickets to rejected lowfare customers, we assume that a fraction alpha in of the rejected lowfare demand will seek to book highfare tickets. Thus, given a booking limit b the total highfare demand D is given by D Dalpha maxD b Note that the booking limit decision will influence the total highfare demand in the case when lowfare demand exceeds the booking limita Let EZb D D denote the expected total revenue given that the booking limit for lowfare customers is set at b Argue that EZb D D f E n minb, D o f E n min C minb, D Dalpha maxD b
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