Question
AC Brun's new service will soon offer daily departures from Ottawa to Paris. The aircraft will have a capacity of 310 seats , all at
AC Brun's new service will soon offer daily departures from Ottawa to Paris. The aircraft will have a capacity of 310 seats, all at a fare of $725, and all fully refundable if the ticket is not used.
For these flights, AC Brun estimates that all seats will be sold, but that the number of passengers who will not show up for their flight will follow a discrete uniform distribution between 1 and 10 inclusive, i.e. the probability that 1 passenger will not show up equals the probability that 2 passengers will not show up equals the probability that 3 passengers will not show up and so on up to 10. The probability that more than 10 passengers will not show up is zero.
To mitigate this risk, AC Brun will oversell: it will sell more tickets than the capacity of the plane. However, it will have to compensate each passenger with a ticket who is denied boarding because the plane is full. This compensation will amount to $210. In addition, the company will have to provide a ticket from a competing company to the passenger denied boarding, which will be equivalent to the price of the ticket.
Use the newsvendor model to estimate how many oversold tickets AC Brun should sell per flight from Ottawa to Paris. Round the final result to zero decimal places.
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