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Question: Problem 6.1 (DoubleTree.) DoubleTree in Austin has 150 standard rooms.
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Problem 6.2 (NorthEast Airways.) A newly created NorthEast Airways (NE) flight from Philadelphia to Boston has 300 seats. The high fare on the flight is $300 and the restricted/low fare is $150. There is ample demand for the low fare class but high fare demand is random. Further, the customers who buy low fares buy their tickets well in advance before high fare customers. Assume the demand for the high fare is normally distributed with mean 150 and standard deviation of 50.
(a) Mr.Wright is in charge of the flight booking operations and decides to set a protection level for the high fare. What is the optimal protection level for the high fare?
(b) Suppose a protection level of 190 is chosen. What is the expected revenue from high fare passengers?
(c) NE Airways has noticed no shows on the flight. Therefore it has decided to implement a policy of overbooking. The number of no-shows is distributed in a normal distribution with mean of 4 and standard deviation of 1. But overbooking may require bumping passengers off the flight, which has a net cost estimated at $450 per bumped passenger. What is the optimal maximum number of reservations to accept on the flight?
