economics multi-part question and need guidance to help me learn.
Business case: revenue management at East-West airlines Suppose that East-West airlines is a small airline that offers passanger air transportation between two major east coast cities, namely Boston and New York; two major west coast cities , namely San Francisco and Los Angeles; and one major midwest city, namely Chicago. East-West operates a hub in Chicago, at which passengers can change planes to their final destination. East-West Airlines owns and operates two identical Boeing 757 aircraft, each with capacity of 200 seats. The daily schedule of these airlines is shown in Table 10.1. East-west offers both discounted (Q-class) and unrestricted (Y-class) fares. Discounted tickets must be purchased fourteen days in advance of flight departure. A Q-class ticket is non-refundable, non-changeable. Unrestricted fare tickets can be purchased any time up until the departure time of the flight. A Y-class ticket is fully refundable. For the purpose of this HA, we will focus exclusively on the westbound operations. Table 10.2 shows the westbound itineraries that East-West airlines. Table 10.3 show expected demand (µ) for each pair of departure-destination (disregard σ). The goal of the airline company is to choose the number of tickets for each class and each itinerary to maximize the revenue. Each flight can carry up to 200 passengers. There are no direct flights from East Coast to West Coast, so the flights to Chicago will carry some passenger that will transfer on another plane to the West coast destination. The optimal solution to this problem is given in ARE155AirlineProblem.xls file. I will discuss the problem statement in the class on Thursday 10/26/23. Please, use the sensitivity report to answer the following questions.
1 (a) Find shadow prices for each of the 16 demand and 4 capacity constraints.
(b) Boston-Chicago Q-class demand has std. deviation σ = 5.3. Compare allowable decrease and increase for this constraint with 1.28σ (10% critical value for the normal distribution). Does the allowable increase for the demand constraints exceed the 1.28σ? How about the allowable decrease? If the threshold of 1.28σ is not exceeded, there is at least 10% chance that the shadow price for the constraint may be inappropriate.
(c) Suppose that you are considering introducing a business class ticket for the BostonChicago itinerary. Two business class seats use the same space as three Q or Y class seats. What is the minimal price you should charge for a business class seat in order to increase profits?
(d) In the absence of business class, you are considering to reduce the price for Q-class ticket on the Boston-Chicago flight. How much can you reduce it without having to re-optimize the ticket sales?
Requirements: 4 questions
