Blokie State's football program has risen to the ranks of the elite with postseason bowl games in each of the past 10 years, including a national...

Blokie State’s football program has risen to the ranks of

the elite with postseason bowl games in each of the past

10 years, including a national championship game. The

Blokes (as the fans are called) fill the stadium each game.

Season tickets are increasingly difficult to find. In response

to the outstanding fan support, Blokie State has decided to

use its bowl revenues to expand the stadium to 75,000 seats.

The administration is confident that all 75,000 seats can

be sold at the normal price of $40 per game ticket; however,

Frank Pinto’s job, as athletic director, is to get as much revenue

out of the stadium expansion as possible. In addition to

stadium boxes for the truly endowed, Frank would like to

take this opportunity to repurpose existing seats. A certain

number of seats (yet to be determined) would be set aside

for premium ticket holders who would pay $200 per ticket

for the privilege of 50-yard line seats with chair backs and

access to indoor concessions. The question is, how many

fans would be willing to pay such a premium? If too many

seats are designated in the premium sections, they could

remain vacant. Too few premium seats would lose potential

revenue for the program.

Frank has decided that if the plan has any chance of

success, unsold premium seats should not be sold at reduced

rates. It would be better to donate them to local

charities instead. Gathering data from his cohorts at peer

institutions, Frank has put together the following probability

distribution of premium ticket holders. The data

begin with 1000 tickets since Frank already has requests

for 999 tickets from alumni donors. He is asking for your

help in performing the analysis.

No. of Premium Tickets Probability

1,000 0.10

5,000 0.30

10,000 0.24

15,000 0.15

20,000 0.10

25,000 0.06

30,000 0.05

a. Using revenue management, determine how many

seats should be reserved for premium ticket holders.

b. Considering your answer to part (a) and the possible outcomes

listed above, how much total revenue (i.e., regular

and premium) can be expected from ticket sales?