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 two-class model to the setting where some of the rejected low-fare customers seek to purchase high-fare tickets. We have a total capacity C. Let f1 and f2 be the price of the low-fare and high-fare tickets. Let the random variables D1 and D2 capture the low-fare and high-fare demands. Assume that D1 and D2 are independent. To model the opportunity to sell high-fare tickets to rejected low-fare customers, we assume that a fraction \alpha in [0,1] of the rejected low-fare demand will seek to book high-fare tickets. Thus, given a booking limit b, the total high-fare demand D2 is given by D2= D2+\alpha maxD1 b,0. Note that the booking limit decision will influence the total high-fare demand in the case when low-fare demand exceeds the booking limit.(a) Let EZ(b, D1, D2) denote the expected total revenue given that the booking limit for low-fare customers is set at b. Argue that EZ(b, D1, D2)= f1 E n minb, D1 o + f2 E n min C minb, D1, D2+\alpha maxD1 b,0

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