Super Cheap Airlines

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Detached: Super Discount Airlines has a plane from Ne.... next up.

Issue: Next Wednesday Super Discount Airlines has a full load from New York to Los Angeles. In the past, the carrier knows that an estimated 25 clients (with a 15 percent difference in standards ) cancelled their reservations or did not show up for the flights. The proceeds from a single air fare are $125.

In the event the air fare is booked, the carrier has the policies of taking the client to the next available air fare and giving the individual a free return air fare for a subsequent air fare. This free round-trip airfare has an average price of $250. Discount Super regards the costs of the New York to Los Angeles airfare as lost costs.

How many places should the Super Discount book over the fare? Underestimation of market value is regarded as a reduction in turnover due to the $125 in air fares being cancelled. Therefore, the costs of the underestimation of market demands,. Costs for estimating excess demands are called reward. $250 free round-trip tickets, for example.

Therefore, the costs of the overestimation of supply, .

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