Meega airlines decided to offer direct service from Akron, Ohio to Clearwater Beach, Florida. Management...
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Meega airlines decided to offer direct service from Akron, Ohio to Clearwater Beach, Florida. Management must decide between full-price service using the companys new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon three possible levels of demand for service: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars).
| Service | Demand for service | ||
| High | Medium | Low | |
| Full price | 900 | 760 | 450 |
| Discount | 720 | 650 | 350 |
The probabilities for the demand levels are P(High) = 0.2, P(Medium) = 0.5, and P(Low) = 0.3, respectively.
Using the expected value approach, what is the recommended decision?
What is the expected value of perfect information (in thousands of dollars)?
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