Question: OVERBOOKING, PART III
Consider again Mockingbird Airlines' problem as described in the overbooking case study.
1. Construct a simulation model of the system, and use it to find Mockingbird's optimal policy regarding overbooking. Compare this answer with the one based on the analysis done
2. Suppose that you are uncertain about the no-show rate. It could be as low as 0.02 or it could be as high as 0.06, and all values in between are equally likely. Furthermore, the cost of satisfying the bumped passengers may not be constant. That is, the airline may in some cases be able to entice a passenger or two to relinquish their seats in exchange for compensation that would be less than a refund and another free ticket. Alternatively, in some cases the total cost, including loss of goodwill, might be construed as considerably higher. Suppose, for example, that the cost of satisfying an excess customer is normally distributed with mean $300 and standard deviation $40. Modify the simulation model constructed in Question 1 to include the uncertainties about the no-show rate and the cost. Do these sources of uncertainty affect the optimal overbooking policy?
3. How else might Mockingbird's analysts address the uncertainty about the no-show rate and the cost?