Business Decision Analysis

2) A local transportation company decided to offer direct service from Whistler to downtown Vancouver. Management must decide between a full-price service using the company's new fleet of full capacity bus and a discount service using smaller capacity vans. It is clear that the best choice depends on the market reaction to the service they offer. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to downtown Vancouver strong and weak. The following table shows the estimated monthly profits (in dollars): Service Full Price Discount Demand for service Strong 400 210 Weak -80 10 a If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the Optimistic, conservative, and minimax regret approaches? (6 marks) b. Suppose that management of this local transportation company believes that the probability of strong demand is 0.8 and the probability of weak demand is 0.2. Use the expected value approach to determine an optimal decision. (6 marks) c. What is the expected value of the perfect information? (2 marks)