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 estimates quarterly profits (in thousands of dollars): Demand for Service Service Strong $960 $670 Weak -$490 $320 Full Price Discount Identify the below: a. What is the decision to be made? b. What is the chance event? c. What is the consequence for this problem? d. How many decisions alternatives are there? e. How many outcomes are there for the chance event?
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 estimates quarterly profits (in thousands of dollars): Demand for Service Service Strong $960 $670 Weak -$490 $320 Full Price Discount Identify the below: a. What is the decision to be made? b. What is the chance event? c. What is the consequence for this problem? d. How many decisions alternatives are there? e. How many outcomes are there for the chance event?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter3: Demand Analysis
Section: Chapter Questions
Problem 1E: The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales...
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Transcribed Image Text: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 estimates quarterly profits (in thousands of dollars):
Demand for Service
Service
Strong
$960
$670
Weak
-$490
$320
Full Price
Discount
Identify the below:
a. What is the decision to be made?
b. What is the chance event?
c. What is the consequence for this problem?
d. How many decisions alternatives are there?
e. How many outcomes are there for the chance event?
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If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the optimistic, conservative, and minimax regret approaches?
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