Expected revenue

Consider the Philadelphia–Los Angeles flight discussed in Q18.5. Assume the available capacity is 200 seats and there is no overbooking. The high fare is $675 and the low fare is $375. Demand for the low fare is abundant while demand for the high fare is normally distributed with a mean of 80 and standard deviation of 35.

a. What is the probability of selling 200 reservations if you set an optimal protection level for the full fare? [18.2]

b. Suppose a protection level of 85 is established. What is the average number of lost high-fare passengers? [18.2]

c. Continue to assume a protection level of 85 is established. What is the expected number of unoccupied seats? [18.2]

d. Again assume a protection level of 85 is established. What is the expected revenue from the flight?

Solution: