Gerald Black of BlackFly Airline has an exclusive contract to run flights of a four-passenger aircraft to a

remote mining center. His contract requires him to fly if there are any passengers wanting to make the trip.

His fixed costs per day are $300, his fixed costs per flight are $1,300.00, the variable cost per passenger is

$20.00, and he charges $800.00 per passenger.

He has tracked the number of passengers who flew with him over the past sixty days. His findings are

summarized in the following table:

Number of Passengers 0 1 2 3 4

Number of Days 3 10 17 20 10

For example, on 17 of the 60 days during tracking, there were 2 passengers. Note that on the 3 days when

there were no passengers Gerald does not fly but still incurs his daily fixed costs (primarily rent).

Assume that this sample gives a good approximation to his future demand patterns. Let G be the random

variable: profit on a future day.

a) Calculate the Expected Value, E[ G ], Variance, 2[ G ] and standard deviation, [ G ], of his future

daily profit. [Hint: You can calculate a profit corresponding to each number of passengers. The

probabilities of those profits are then determined by the probabilities of the numbers of passengers.]

b) Comment briefly on the profitability and volatility of Gerald's business.