Sky Kitchens is the second largest airline caterer in the UnitedStates, providing nearly all the meals for passengers of threemajor airlines and several smaller commuter airlines. As part of atotal quality management (TQM) program, its largest airline client,Continental Airlines, has recently met with representatives of SkyKitchens to discuss a customer satisfaction program that it isplanning to implement. Continental plans to interview a sample ofits customers four times a year. In the survey, it intends to askcustomers to rate the quality of meals provided on a 1–10 scale,where 1 means poor and 10 means excellent. It has just completed abenchmark study of 1,000 customers. In that study, meals receivedan average rating of 8.7 on the 10-point scale, with a standarddeviation of 1.65. Continental has indicated that it wants SkyKitchens to guarantee a level of satisfaction of 8.5 in the firstquarterly survey, to be conducted in three months. For itsquarterly surveys, Continental plans to use a sample size of 500.In the new contract with Sky Kitchens, Continental wants to includea clause that will penalize Sky Kitchens $50,000 for each one-tenthof a point it falls below an average of 8.5 on the next survey’ssatisfaction scale.
1. What is the 99.74% confidence interval (CI) for the truesatisfaction level based on the benchmark survey?
2. What is the 99% confidence interval (CI) for the truesatisfaction level based on the benchmark survey?
3. What is the 95.44% CI for the true satisfaction level basedon the benchmark survey?
4. What is the 95% CI for the true satisfaction level based onthe benchmark survey?
5. As Sky Kitchens, what do you think of Continental’srequirement for a level of satisfaction of 8.5 in the first quartersurvey?
6. Assume that the upcoming 1st -quarter satisfaction surveyshows anaverage rating of 8.4 on satisfaction with meals. Assumethat the population standard deviation is1.65. Compute the 99% CIfor the true satisfaction level based on the 1st-quarter survey. AsSky Kitchens, what is the best way to present and interpret theresulting CI?
7. If you were negotiating for Sky Kitchens, how would yourespond to Continental regarding the penalty clause? Is there abetter or more reasonable way to revise it
