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Overbooking policies for major airlines.Airlines overbook flights to reduce the odds of flying with unused seats. An article in Transportation Research (Vol. 38, 2002) investigated the optimal overbooking policies for major airlines. One of the variables measured for each airline was the compensation (in dollars) per bumped passenger required to maximize future revenue. Consider the threshold compensation levels for a random sample of 10 major airlines shown in the next table. Estimate the true mean threshold compensation level for all major worldwide airlines using a90% confidence interval. Interpret the result practically.

825

850

1,210

1,370

1,415

1,500

1,560

1,625

2,155

2,220

Short Answer

Expert verified

The point estimate for misCI=Xzn

For90% confidence interval for mis113695.32

The assumptions are written for a confidence interval. And there are only three conditions satisfied.

Step by step solution

01

Given information

Consider threshold levels of compensation for a random sample of 10major airline samples shown in the table.

02

Find a point estimate for m

First, in this problem, we find the mean from the given table. Sample size n=10.Then, the mean will be given by:

X=825+850+1210+1370+1500+1560+1625+2155+222010=1332010=1332

Then the sample variance will be given by:

s2=i=1n(XiX)2n1=i=110(XiX)2101=i=110(XiX)29

Then

s2=825-13322+850-13322+1210-13322+1370-13322+(14151332)2+(15001332)2+(15601332)2+(16251332)2+(21551332)2+(22201332)29=2145209=238280

We know for interval estimate, the confidence interval will be given by

CI=Xzn

This is the point estimate for m.

03

Find 90%confidence interval for  m

We know that for 90%confidence interval, the estimate will be written as

CI=Xzn

For90%confidence interval, thezscore will be given by

z=1.645

Therefore the confidence interval is written as

CI=Xzn=X1.645n

Here we calculate the variance from the given table

var(x)=E(x2)E2(x)

Then

E(x2)=(825)2+(850)2+(1210)2+(1370)2+(1415)2+(1500)2+(1560)2+(1625)2+(2155)2+(2220)2=23643000

Then the variance will be given by

var(x)=E(x2)E2(x)=23643000(1332)2=21868776

Mean is X=1332

Therefore the confidence interval will be given by

CI=Xzn=X1.645n=13321.6452186877610=113695.32

And

CI=133211368603.32=11367271.32

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