Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
6th Edition
ISBN: 9781337115186
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: Cengage Learning
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Chapter 20.2, Problem 4E
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 |
- 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. Suppose that management of Myrtle Air Express believes that the
probability of strong demand is .7 and the probability of weak demand is .3. Use theexpected value approach to determine an optimal decision. - c. Suppose that the probability of strong demand is .8 and the probability of weak demand is .2. What is the optimal decision using the expected value approach?
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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…
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…
Chapter 20 Solutions
Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
Ch. 20.2 - Prob. 1ECh. 20.2 - Prob. 2ECh. 20.2 - 3. Hudson Corporation is considering three options...Ch. 20.2 - 4. Myrtle Air Express decided to offer direct...Ch. 20.2 - 5. The distance from Potsdam to larger markets and...Ch. 20.2 - 6. Seneca Hill Winery recently purchased land for...Ch. 20.2 - 7. The Lake Placid Town Council has decided to...Ch. 20.3 - Consider a variation of the PDC decision tree...Ch. 20.3 - 9. A real estate investor has the opportunity to...Ch. 20.3 - Dante Development Corporation is considering...
Ch. 20.3 - 11. Hale’s TV Productions is considering producing...Ch. 20.3 - 12. Martin’s Service Station is considering...Ch. 20.3 - 13. Lawson’s Department Store faces a buying...Ch. 20.4 - Prob. 14ECh. 20.4 - 15. In the following profit payoff table for a...Ch. 20.4 - 16. To save on expenses, Rona and Jerry agreed to...Ch. 20.4 - 17. The Gorman Manufacturing Company must decide...Ch. 20 - Prob. 18SECh. 20 - 19. Warren Lloyd is interested in leasing a new...Ch. 20 - Hemmingway, Inc., is considering a $50 million...Ch. 20 - 21. Embassy Publishing Company received a...Ch. 20 - Case Problem Lawsuit Defense Strategy
John...
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