cleveland to mytrle beach. Management must decide between a full-proce service
using the company’s new fleet of jet aircraft and a discount service using
smaller capacity commuter planes. It is clear that the best choice depends on
the market reaction to the service mytrle air offers. Management devloped estimates
of the contribution to profit for each type of service based upon two possible
levels of demand for service to mytrle beach:strong or weak. THe following
table shows the estimated quarterly profits (in the thousands of dollors)
Demand of Service
Service Strong Weak
Full Price $960 -$490
Discount $670 $320
a. what is the decision to be made , what is the chance
event, and what is the consequence for this problem. How many decision
alternatives are there? How many out comes are there for chance event?
b. If nothing is known about probabilities of the chance
outcomes, what is the recommended decision using the optimistic, conservation,
and minimax regret approaches?
c. Suppose that management of Mytrle Air express believes
that the probability of weak demand is 0.70. and the probability of weak demand
is 0.3. Use the expected value approach to determine an optimal decision.
d. suppose that the probability of strong demand is 0.8 and
the probability of weak demand is 0.2. What is the optimal decision using the
expected value approach?
e. Use graphical sensitivity analysis to determine the range
of demand probabilities for which each of decision alternatives has the largest
expected value.
