Solutions-Assignment5

Solutions-Assignment5 - Assignment 5 Solutions Problem 1...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Assignment 5 Solutions Problem 1 solution a) The decision to be made is to choose the type of service to provide. The chance event is the level of demand for the Ryano Air service. The consequence is the amount of quarterly profit. There are two decision alternatives (full price and discount price). There are two outcomes for the chance event (Strong demand and Weak demand). b) Type of Service Maximum Profit Minimum Profit Full Price $480 -$245 Discount $335 $160 Optimistic Approach: Full price service Conservative Approach: Discount service Opportunity loss or Regret Table ________________|_High Demand Low Demand Maximum Regret Full Service | 0 405 405 Discount Service | 145 0 145 Minimax Regret Approach: Discount service c) EV(Full) =0.7(480)+0.3(-245) =262.5 EV (Discount) =0.7(335) +0.3(160) =282.5 Optimal Decision: Discount Service d) EV (Full)=0.8(480) +0.2(-245)= 335 EV (Discount) =0.8(335) +0.2(160) =300 Optimal Decision: Full Price Service e) Let p = probability of strong demand
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/18/2011 for the course BUS 220 taught by Professor Drexel during the Fall '08 term at SUNY Stony Brook.

Page1 / 3

Solutions-Assignment5 - Assignment 5 Solutions Problem 1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online