Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN: 9781305627734
Author: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher: Cengage Learning
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Textbook Question
Chapter 15, Problem 7P
Myrtle Air Express decided to offer direct service from Cleveland to Myrtle Beach. Management must decide between a full-price 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 Myrtle Air offers. Management developed estimates of the contribution to profit for each type of service based on two possible levels of demand for service to Myrtle Beach: strong and weak. The following table shows the estimated quarterly profits (in thousands of dollars):
- 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 outcomes are there for the chance event? - b. If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the optimistic, conservative, and minimax regret approaches?
- c. Suppose that management of Myrtle Air Express believes that the
probability of strong demand is 0.7 and the probability of weak demand is 0.3. Use theexpected 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 sensitivity analysis to determine the
range of demand probabilities for which each of the decision alternatives has the largest expected value.
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Myrtle Air Express decided to offer direct service from Cleveland to Myrtle Beach. Management must decide between a full-price 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 Myrtle Air offers. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to Myrtle Beach: strong and weak. The following table shows the estimated quarterly profits (in thousands of dollars):
Demand for Service
Service
Strong
Weak
Full price
$960
-$490
Discount
$670
$320
1. 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?Optimal Decision:
Use graphical sensitivity analysis to determine the range of demand probabilities for which each of the decision…
Myrtle Air Express decided to offer direct servide from Cleveland to Myrtle Beach. Management must decide between a full-price 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 Myrtle Air offers.
Management developed estimates of the contribution to profit for each type of service based on three possible levels of demand for service to Myrtle Beach: strong, medium and weak.
The following table shows the estimated quarterly profits (in thousands of dollars):
Demand for Service
Service
Strong
Medium
Weak
Full Price
950
600
-400
Discount
750
450
300
Probability
0.4
0.3
0.3
Suppose that management of Myrtle Air Express has developed the following utility function:
U(950) = 100, U(750) = 89, U(600) = 72, U(450) = 58, U(300) = 48, and U(-400) = 0.
Use the expected utility approach to determine the optimal decision.
What is the…
Myrtle Air Express decided to offer direct service from Cleveland to Myrtle Beach. Management must decide between a full-price 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 Myrtle Air offers. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to Myrtle Beach: strong and weak. The following table shows the estimated quarterly profits (in thousands of dollars):
Demand for Service
Service
Strong
Weak
Full price
$960
-$490
Discount
$670
$320
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?Optimal Decision:
e. Use graphical sensitivity analysis to determine the range of demand probabilities for which each of the decision…
Chapter 15 Solutions
Essentials of Business Analytics (MindTap Course List)
Ch. 15 - Prob. 1PCh. 15 - Southland Corporation’s decision to produce a new...Ch. 15 - Amy Lloyd is interested in leasing a new Honda and...Ch. 15 - Investment advisors estimated the stock market...Ch. 15 - Hudson Corporation is considering three options...Ch. 15 - Prob. 6PCh. 15 - Myrtle Air Express decided to offer direct service...Ch. 15 - Video Tech is considering marketing one of two new...Ch. 15 - Seneca Hill Winery recently purchased land for the...Ch. 15 - Hemmingway, Inc. is considering a $5 million...
Ch. 15 - The following profit payoff table was presented in...Ch. 15 - Suppose that you are given a decision situation...Ch. 15 - A firm has three investment alternatives. Payoffs...Ch. 15 - Alexander Industries is considering purchasing an...Ch. 15 - In a certain state lottery, a lottery ticket costs...Ch. 15 - Three decision makers have assessed utilities for...Ch. 15 - In Problem 22, if P(s1) = 0.25, P(s2) = 0.50, and...Ch. 15 - Translate the following monetary payoffs into...Ch. 15 - Consider a decision maker who is comfortable with...
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