Arbitrage proofs in futures market pricing relationships:_____.a. incorporate transactions costs. b. rely on the CAPM. c. demons
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The cost of underestimating the demand is considered a revenue loss that arises due to cancellation of flight costing $134. Hence, cost of underetimating the demand is 
.
The cost of overestimating the demand is known as rewards. For example, free round trip ticket worth $263. Hence, the cost of overestimating the demand is
.
The z-score that yields a p-value of 0.3375 is -0.4193.
Thus, super discount airlines should overbook the flight by 35 + (-0.4193 x 24) = 35 - 10.0632 = 24.9368 = 25 seats.
Therefore, super discount airlines should overbook the flight by 25 seats.
The cost of overestimating the demand is known as rewards. For example, free round trip ticket worth $263. Hence, the cost of overestimating the demand is
The z-score that yields a p-value of 0.3375 is -0.4193.
Thus, super discount airlines should overbook the flight by 35 + (-0.4193 x 24) = 35 - 10.0632 = 24.9368 = 25 seats.
Therefore, super discount airlines should overbook the flight by 25 seats.