REVENUE MANAGEMENT FINAL
QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS)
A flight has a capacity of 100 seats and two fare classes.
The full fare is $400, and full-fare demand is normally
distributed with a mean of 30 and standard deviation 150.
If the discount fare is $200, how many seats should the
airline protect for the full-fare passengers? - correct
answer- 30
A measure of the effectiveness of a company in capacity
allocation is the Revenue Opportunity Metric (ROM). This
metric is given by - correct answer- Revenue
actually achieved from a capacity allocation minus the
revenue that would have been achieved under no
revenue management as a percentage of the revenue
opportunity
All sellers face capacity or supply constraints. Hard
constraints are - correct answer- Constraints
that cannot be violated at any price in the short term
,alternatives to overbooking - correct answer-
1. standbys- booking sold at a deep discount that gives
the customer access to capacity on a "space-available"
basis
2. bumping strategy- if unexpected high-fare demand
materializes, the airline overbooks with the idea that they
can deny boarding to low-fare bookings
3. replane concept- an airline with higher-than-attempted
demand contacts customers and offers them some level
of compensation to take a later flight
4. last-minute discounts- usually only offered through
channels like Hotwire and Priceline to sell capacity that
would go unused
5. cancellation and no-show penalties
At the strategic level, revenue management identifies -
correct answer- Market segments and products
for those markets
, components of denied service cost (9) - correct
answer- 1. direct cost of the compensation to the
bumped passenger
2. the provision cost of meals/lodging provided to
customer
3. accommodation cost of a customer denied service
4. ill-will cost from denying service
dynamic virtual meeting = static virtual nesting + bid
pricing (8) - correct answer-
how do you estimate bid prices? (8) - correct
answer- Using the LP formulation, the bid prices
are the shadow prices of the capacity resources
how do you find the booking limit of risk-based
overbooking policies when no-shows are independent of
the total number of bookings (9) - correct answer-
E[R|b] = pE[min{b,d}-x]-D E[(min{b,d}-x-C)+]
QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS)
A flight has a capacity of 100 seats and two fare classes.
The full fare is $400, and full-fare demand is normally
distributed with a mean of 30 and standard deviation 150.
If the discount fare is $200, how many seats should the
airline protect for the full-fare passengers? - correct
answer- 30
A measure of the effectiveness of a company in capacity
allocation is the Revenue Opportunity Metric (ROM). This
metric is given by - correct answer- Revenue
actually achieved from a capacity allocation minus the
revenue that would have been achieved under no
revenue management as a percentage of the revenue
opportunity
All sellers face capacity or supply constraints. Hard
constraints are - correct answer- Constraints
that cannot be violated at any price in the short term
,alternatives to overbooking - correct answer-
1. standbys- booking sold at a deep discount that gives
the customer access to capacity on a "space-available"
basis
2. bumping strategy- if unexpected high-fare demand
materializes, the airline overbooks with the idea that they
can deny boarding to low-fare bookings
3. replane concept- an airline with higher-than-attempted
demand contacts customers and offers them some level
of compensation to take a later flight
4. last-minute discounts- usually only offered through
channels like Hotwire and Priceline to sell capacity that
would go unused
5. cancellation and no-show penalties
At the strategic level, revenue management identifies -
correct answer- Market segments and products
for those markets
, components of denied service cost (9) - correct
answer- 1. direct cost of the compensation to the
bumped passenger
2. the provision cost of meals/lodging provided to
customer
3. accommodation cost of a customer denied service
4. ill-will cost from denying service
dynamic virtual meeting = static virtual nesting + bid
pricing (8) - correct answer-
how do you estimate bid prices? (8) - correct
answer- Using the LP formulation, the bid prices
are the shadow prices of the capacity resources
how do you find the booking limit of risk-based
overbooking policies when no-shows are independent of
the total number of bookings (9) - correct answer-
E[R|b] = pE[min{b,d}-x]-D E[(min{b,d}-x-C)+]
