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	$330

(a)

What is the decision to be made, what is the chance event, and what is the consequence for this problem?

The decision to be made is ---Select--- the level of demand for the service the type of service to provide the amount of quarterly profit . The chance event is ---Select--- the level of demand for the service the type of service to provide the amount of quarterly profit . The consequence is ---Select--- the level of demand for the service the type of service to provide the amount of quarterly profit .

How many decision alternatives are there?

How many outcomes are there for the chance event?

(b)

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

The recommended decision using the optimistic approach is the ---Select--- full price discount service. The recommended decision using the conservative approach is the ---Select--- full price discount service. The recommended decision using the minimax regret approach is the ---Select--- full price discount service.

(c)

Suppose that management of the airline 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. (Enter your answers in thousands of dollars.)

EV(full)$ thousandsEV(discount)$ thousandsThe optimal decision is the ---Select--- full price discount service.

(d)

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? (Enter your answers in thousands of dollars.)

EV(full)$ thousandsEV(discount)$ thousandsThe optimal decision is the ---Select--- full price discount service.

(e)

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 ---Select--- full price discount service is the best choice. If the probability of strong demand is greater than , the ---Select--- full price discount service is the best choice.