Myrtle Air Express decided to offer direct service from Cleveland to MyrtleBeach. Management must decide between a full price service using thecompany's new fleet of jet aircraft and a discount service using smallercapacity commuter planes. It is clear that the best choice depends on themarket reaction to the service Myrtle Air offers. Management developedestimates of the contribution to profit for each type of service based upon twopossible levels of demand for service to Myrtle Beach: strong and weak. Thefollowing table shows the estimates quarterly profits (in thousands of dollars):Demand for ServiceServiceStrong$960$670Weak-$490$320Full PriceDiscountIdentify 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?

* ANSWER :- (a) The decision is to be made from the alternatives that whether Full price service or…

Answered: Myrtle Air Express decided to offer…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 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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