What is the corresponding expected net profit

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Reference no: EM132699687

Problem - Consider a flight with 100 seats and a passenger fare of $130. The denied-boarding cost is $390 per denied boarding, and the no-show rate is 0.16 (assuming a binomial no-show model). Demand for this flight is extremely high; in fact, for any booking limit b < 200, bookings will always hit the booking limit.

Assume that only the passengers who show up for the flight pay the fare of $130. This is the case that we covered in the lecture and others are fully refunded. What is the optimal booking limit in this case? What is the corresponding expected net profit?

Reference no: EM132699687

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