Question

3. An airline company operates a plane between ATL and DC. This plane has 120 seats for economy class with two price tiers: low fare at $250 and high fare at $420. The low fare seats target for travelers and there is an unlimited demand from travelers. So seats o ered at $250 will always be sold out. The high fare seats target for business travelers and the company believes that the number of business travelers for this route follows Poisson with mean 20. As business travelers plan for their travels in the last minute, any seats assigned to business travelers must be remained and cannot be o ered to travelers. How many seats should be assigned to the business travelers to maximize the revenue?

Answer 1

Answer: 20 seats

Explanation:

The optimal number of business travellers will be the mean of Poisson distribution i.e 20, since the number of business travellers follows Poisson distribution. Which means that the probability that there will be 20 business travellers will be higher than all other numbers.

Therefore 20 seats must be assigned to business travellers to maximize the revenue.