Deleast Airlines operates a daily commuter flight between Indianapolis and Orlando. The plane used for this lag holds 100 people. The ticket on this flight costs $300. It costs $10000 to fly an empty plane and each customer on the plane incurs a variable cost of $60 (food and fuel). If the flight is overbooked, anyone who cannot get a seat receives $200 in compensation in addition to the refund of $300. Based on historical data, there is a 0.10 probability that a person who made a reservation will not show up at the flight time – these customers receive a refund of only $100 (that is, they are penalized $200).

(a) If Deleast take 125 reservations for this flight, use @RISK to simulate for 1000 days to estimate expected profit per flight. Since this is Deleast’s most popular flight, we can assume that whatever number of reservations the management decides to take, they will be sold. (Hint: For a given number of reservations (n), ask yourself, what distribution does the number of customers who shows up follows given that each customer has a probability of p=0.90 of showing up).

(b) Experiment with your spreadsheet from Part (a) to determine the optimum number of reservations to take so as to maximize expected profit.