Direct Air operates a 300 seat jet from Toledo to Myrtle Beach, SC once a week. Cancellation distribution is normal with mean 30 and s.d. 8. A vacant seat in the jet is considered to cost $600 for the airline. An overbooked passenger, who has to be turned away, costs $900 to the airline. (PLEASE EXPLAIN YOUR WORK)

a. What is the cost of excess (in the context of single period inventory management)?

b. What is the cost of shortage (in the context of single period inventory management)?

c. What is the appropriate ratio to determine the correct number of seats to be overbooked?

d. What should be the number of seats overbooked (round to nearest integer)?

e. Suppose that the s.d. of cancellations is 0, all other things remaining the same, how many seats would you overbook? Explain.

f. Suppose that all bumped passengers had to be paid $2000 each, would your answer to number of overbooked seats be much less than the average of 30 or much more than the average of 30? Circle one: Much less than 30     Much more than 30

Explain: