5. The cost-of-living increases brought about by the pandemic, including increased energy costs, has forced Emma Wang, the managing director of Pinkie Pie plc, to identify new marketing strategies she might employ over the coming year in order to maximise Pinkie Pie's sales. She decides that there are three possible strategies, A, B and C, and that the sales (m) which these strategies will produce will depend upon the rate of inflation in the coming year as follows: Profit achieved by Pinkie Pie plc (m) Rate of inflation High Medium Low A 4 7 11 PinkiePie's business B 5 8 10 strategy 2 6 15 (a) If Emma Wang employs the coefficient of optimism criterion to select an optimal strategy, determine how optimistic she would need to be in order to choose strategy C and explain the methodology employed. (200 words maximum) (15 marks) (b) Determine which strategy Emma Wang would employ if she used the regret criterion and explain the methodology employed? (150 words maximum) (15 marks) (c) Outline the relative strengths and weaknesses of the maximax and the insufficient reason criteria. (200 words maximum) (20 marks) (d) Pinkie Pie's economist informs Emma Wang that inflation will be either 'high' or 'low' in the coming year (i.e., he believes that inflation will not be 'medium'). Following discussions, they agree that the probability of inflation being 'high' is 0.8 and 'low' is 0.2. In the light of this additional information determine which strategy Emma Wang would select if she employed the 'EMV', 'Variance', and 'Risk-adjusted statistic' techniques. You are also expected to discuss the relative merits of these approaches and the value of sensitivity analysis when employing these techniques. (300 words maximum) (50 marks) 5. The cost-of-living increases brought about by the pandemic, including increased energy costs, has forced Emma Wang, the managing director of Pinkie Pie plc, to identify new marketing strategies she might employ over the coming year in order to maximise Pinkie Pie's sales. She decides that there are three possible strategies, A, B and C, and that the sales (m) which these strategies will produce will depend upon the rate of inflation in the coming year as follows: Profit achieved by Pinkie Pie plc (m) Rate of inflation High Medium Low A 4 7 11 PinkiePie's business B 5 8 10 strategy 2 6 15 (a) If Emma Wang employs the coefficient of optimism criterion to select an optimal strategy, determine how optimistic she would need to be in order to choose strategy C and explain the methodology employed. (200 words maximum) (15 marks) (b) Determine which strategy Emma Wang would employ if she used the regret criterion and explain the methodology employed? (150 words maximum) (15 marks) (c) Outline the relative strengths and weaknesses of the maximax and the insufficient reason criteria. (200 words maximum) (20 marks) (d) Pinkie Pie's economist informs Emma Wang that inflation will be either 'high' or 'low' in the coming year (i.e., he believes that inflation will not be 'medium'). Following discussions, they agree that the probability of inflation being 'high' is 0.8 and 'low' is 0.2. In the light of this additional information determine which strategy Emma Wang would select if she employed the 'EMV', 'Variance', and 'Risk-adjusted statistic' techniques. You are also expected to discuss the relative merits of these approaches and the value of sensitivity analysis when employing these techniques. (300 words maximum) (50 marks)
