Meega Airlines Decided to Offer Direct Service from Akron to Clearwater

question 13

Essay

Meega airlines decided to offer direct service from Akron to Clearwater beach, Florida. Management must decide between full-price service using a company's new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service on Clearwater beach: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars):

The probabilities for the demand is P(High) = 0.3, P(Medium) = 0.5, and P(Low) = 0.2, respectively. a. What is the optimal decision strategy if perfect information were available?
b. What is the expected value for the decision strategy developed in part a?
c. Using the expected value approach, what is the recommended decision without perfect information? What is its expected value?
d. What is the expected value of perfect information?

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Definitions:

Fluid Intelligence

The ability to think abstractly, reason, identify patterns, and solve problems with new information, independent of acquired knowledge.

Intellectual Abilities

Refers to the mental capacity for reasoning, problem solving, and learning.

Environment

The surroundings or conditions in which a person, animal, or plant lives or operates, including both natural and human-made conditions.

Delinquent

A person, typically younger, who behaves in a way that is illegal or not acceptable to most people.