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Myrtle Air Express decided 1o offer direct service from Cleveland to Myrile Beach. Management must decide between a full-price service using the company's new fleet
Myrtle Air Express decided 1o offer direct service from Cleveland to Myrile Beach. 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 Myrtle Air offers. Management developed estimates of the contribution o profit for each type of service based upon two possible levels of demand for service to Myrtle Beach: strong and weak. The following table shows the estimated guarterly profits (in thousands of dollars ) Demand for Service Service Strong Weak Full price 960 54490 Discount 670 5320 4. What is the decision to be made, what is the chance event, and what is the consequence for this problem? 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 oulcomes, what is the recommended decision using the optimistic, conservative, amd minimax regret approaches? . Suppose that management of Myrtle Air Express believes that the probability of strong demand 15 0.7 and the probability of weak demand 15 0.3, Use the expected value approach o determine an optimal decision. DECISION TREE Strong ( L Small (dj) Weak (12) 7 Strong () 14 Medium (d,) Weak (57) Strong (5 ) 20 Large Idyl Weak (az)CHAPTER 13: DECISION ANALYSIS 13.1 Introduction 13.2 Decision Making without Probabilities 13.3 Decision Making with Probabilities I 3.4 Risk Analysis and Sensitivity Analysis Part - 2 13.5 - Decision Analysis with Sample Information 13.6 = Computing Branch Probabilities with Bayes' Theorem 13.7 Utility Theory INFLUENCE DIAGRAMS An influence diagram is a graphical device showing the relationships among the decisions, the chance events, and the consequences. Squares or rectangles depict decision nodes. Circles or ovals depict chance nodes. Diamonds depict consequence nodes. INFLUENCE DIAGRAMS States of Nature Strong (%)) Weak (55) Complex - Size Small complex (d}) Profit Medium complex (d5) Large complex (dy) DECISION TREE . A decision tree is a chronological representation of the decision problem. . Each decision tree has two types of nodes( round nodes correspond to the states of nature while square nodes correspond to the decision alternatives. . The branches leaving each round node represent the different states of nature while the branches leaving each square node represent the different decision alternatives.DECISION TREE Strong Is 1 Small (d ) Weak (an) 7 Strong () 14 Medium (-) 1 Weak (37) Strong (5) 20 Large (al Weak (on)DECISION TREE = Graphical representation of the decision-making process * For PDC example * Decision regarding the size of the complex State of nature (demand) * You will see 4 nodes * MNode | decision node * Node 2,3,4 are chance nodes * Branches leaves these nodes are sates of nature and payoffs are shown at the end
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