Suppose that the probability of strong demand is 0.8 and, Ask an Expert

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Demand for Service
ServiceStrongWeak
Full price$960-$490
Discount$670$320

a. If nothing is known about the probabilities of the chance outcomes, determine the recommended decision using the optimistic, conservative, and minimax regret approaches.

b. 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 the expected value approach to determine an optimal decision.

c. 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?

d. 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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