How many seats should the airline sell

Reference no: EM13188857

Suppose a small plane can seat 20 passengers. Airlines often book more passengers than seats available knowing there is a good chance someone might cancel and the airline loses $250 for every empty seat. On the other hand, when they are overbooked and more people show up than there are seats available for them, they have to offer an incentive for passengers to reschedule and the incentive to get a passenger to give up a seat costs the airline $100 on average. Given a cancellation rate of 10%, how many seats should the airline sell in order to minimize their expected losses?

Reference no: EM13188857

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