AT&T has obtained the following information about its DSL customers. During the
ID: 3562599 • Letter: A
Question
AT&T has obtained the following information about its DSL customers. During the first year of service, 25 percent cancel their service. Of those customers who have had service for one year, 15 percent cancel during the second year. Of those who have had service for more than two years, 5 percent will cancel during any given year. Model this process as a Markov chain by determining the one-step state transition matrix P when Xn is defined to be the continuous years of DSL service for a customer at the beginning of year n. Assume a modeling horizon of only 5 years since AT&T expects wireless internet service to make DSL unprofitable after 5 years.
Explanation / Answer
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