Offwego Airlines has a daily flight from Chicago to Las Vegas. On average, 18 ticket holderscancel their reservations at the last minute, so the company intentionally overbooks the flight.Cancellations can be described by a normal distribution with a mean of 18 passengers and astandard deviation of 4 passengers. Profit per passenger is $99. If a passenger arrives butcannot board due to overbooking, the company provides compensation of $200 in cash.
a. What is the cost of stocking out (i.e., not having enough seats)?
b. What is the cost of an unsold seat?
c. How many tickets should be overbooked to maximize expected profit?