Question
An airline decided to offer direct service from City A to City B. Management must decide between a full price service using the company's new
An airline decided to offer direct service from City A to City B. Management must decide between a full price 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 the airline offers. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to City B: strong and weak. The following table shows the estimated quarterly profits (in thousands of dollars).
Service | Demand for Service | |
---|---|---|
Strong | Weak | |
Full price | $950 | $510 |
Discount | $660 | $320 |
Use sensitivity analysis to determine the range of demand probabilities for which each of the decision alternatives has the largest expected value. (Round your answers to four decimal places.)
If the probability of strong demand falls below __________The discount service is the best choice. If the probability of strong demand is greater than ________ full price service is the best choice.
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