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An airline serving Denver's International Airport and Steamboat Springs

Question

An airline serving Denver’s International Airport and Steamboat Springs, Colorado, is considering overbooking its

flights to avoid flying with empty seats. For example, the ticket agent is thinking of taking seven reservations for an airplane that has only six seats. During the past month, the no-show experience has been:

No-shows01234
Percentage3025201510

The operating costs associated with each flight are pilot, $150; first officer, $100; fuel, $30; and landing fee, $20.

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What would be your recommendation for overbooking if a one-way ticket sells for $80 and the cost of not honoring a reservation is a free lift ticket worth $50 plus a seat on the next flight?

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