Problem 13-09 (Algorithmic)

Myrtle Air Express decided to offer direct service fromCleveland to Myrtle Beach. Management must decide between afull-price service using the company’s new fleet of jet aircraftand a discount service using smaller capacity commuter planes. Itis clear that the best choice depends on the market reaction to theservice Myrtle Air offers. Management developed estimates of thecontribution to profit for each type of service based upon twopossible levels of demand for service to Myrtle Beach: strong andweak. The following table shows the estimated quarterly profits (inthousands of dollars):

	Demand for Service
Service	Strong	Weak
Full price	$1320	-$550
Discount	$980	$440

1. What is the decision to be made, what is the chance event, andwhat is the consequence for this problem?
   
   The input in the box below will not be graded, but may be reviewedand considered by your instructor.
   
   
   
   How many decision alternatives are there?
   
   Number of decision alternatives =
   
   How many outcomes are there for the chance event?
   
   Number of outcomes =
   
2. If nothing is known about the probabilities of the chanceoutcomes, what is the recommended decision using the optimistic,conservative and minimax regret approaches?
   

   Optimistic approach
   Conservative approach
   Minimax regret approach

3. Suppose that management of Myrtle Air Express believes that theprobability of strong demand is 0.7 and the probability of weakdemand is 0.3. Use the expected value approach to determine anoptimal decision.
   
   Optimal Decision :  
   
4. Suppose that the probability of strong demand is 0.8 and theprobability of weak demand is 0.2. What is the optimal decisionusing the expected value approach?
   
   Optimal Decision :  
   
5. Determine the range of demand probabilities for which each ofthe decision alternatives has the largest expected value. Ifrequired, round your answer to four decimal places.
   
     is the best choice if probability of strong demand isless than or equal to . For values of  greater than , thefull price service is   choice.