09 May WHAT IS THE OPTIMAL DECISION USING THE EXPECTED VALUE APPROACH?
Decision modeling for Mytrle Air ExpressMytrle Air Express decided to offer direct service from cleveland to mytrle beach. Management must decide between a full-proce 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 mytrle air offers. Management devloped estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to mytrle beach:strong or weak. THe following table shows the estimated quarterly profits (in the thousands of dollors)Demand of ServiceService Strong WeakFull Price $960 -$490Discount $670 $320a. 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 out comes are there for chance event?b. If nothing is known about probabilities of the chance outcomes what is the recommended decision using the optimistic conservation and minimax regret approaches?c. Suppose that management of Mytrle Air express believes that the probability of weak demand is 0.70. and the probability of weak demand is 0.3. Use the expected 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 graphical sensitivity analysis to determine the range of demand probabilities for which each of decision alternatives has the largest expected value.
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