Use the Following Information to Determine the Optimal Overbooking Policy

Multiple Choice

Use the following information to determine the optimal overbooking policy for a spa center at downtown Marquette. The center's capacity is 12 guests. The historic number of no-shows for a typical day, along with the probability of occurrence, is shown in the following table. The average profitability per guest is $80, and the cost of lost goodwill per guest due to overbooking is approximately $40.

-Based on the total expected profits obtained in Questions 41 through 43, which policy should be selected?

A) More than 14 reservations
B) 12 reservations (that implies no overbooking)
C) 14 reservations (that implies 2 overbookings)
D) 13 reservations (that implies 1 overbooking)
E) Need additional information to calculate the total expected profit