Suppose that Teeny Weeny Airlines (TWA) operates a very smallflight from Charleston to Bermuda with only five seats available onthe aircraft. They're interested in determining whether they shouldfollow the lead of the larger carriers and oversell that flight toincrease their revenue and minimize flights with empty seats.Assume that the event of a ticketed passenger not showing up for aflight is 0.10 and that the no-show events areindependent.
A. Suppose TWA decides to sell up to 6 tickets per flight.Assuming that the distribution of passenger no-shows follows abinomial distribution, create a table showing the probability of 0,1, 2, 3, 4, 5, and 6 no-shows on a flight when there are 6 ticketssold.
B. What is the probability that exactly 1 ticketed passenger outof 6 will not show up for a flight?
C. What is the probability that at least 1 ticketed passengerout of 6 will not show up for a flight?
D. Suppose TWA sells non-refundable tickets for $200 apiece. Anypassenger who is bumped due to overselling will be guaranteed thenext available seat (which it costs on average $250) at noadditional cost and given vouchers for two free flights in thefuture (which it costs on average $400). Would you recommend thatTWA pursue the overselling strategy? Why or why not?
