Q1 Pashley Package Holidays has to decide whether to discount its holidays to destinations abroad next summer in response to poor consumer confidence in international travel following recent military events. If they do not discount their prices and consumer confidence in air travel remains low the company expects to sell 1300 holidays at a profit of 60 per holiday. However, if they discount their prices and confidence remains low they expect that they could sell 2500 holidays at a profit of

35 per holiday. If they do not discount their prices and consumer confidence in air travel recovers they could expect to sell 4200 holidays at a profit of 50. If they do discount their prices and consumer confidence recovers, they could expect to sell 5000 holidays at a profit of 20. Recommend which course of action the company should take with the aid of:

(Make Pay-off table)

(a) the maximax decision rule

(b) the maximin decision rule

(c) the minimax regret decision rule

(d) the equal likelihood decision rule

Q2 Heemy Pharmaceuticals marketed a drug that proved to be an effective treatment but unfortunately resulted in side effects for some patients. On the basis of initial clinical research the probability that a patient who is treated with the drug suffers no side effect is 0.85, the probability of a minor side effect is 0.11, and the probability of a major side effect is 0.04. Under an agreement with the appropriate authorities the company has agreed to pay 2500 in compensation to patients who suffer aminor side effect and 20,000 in compensation to patients who suffer a major side effect. What is the expected value of the compensation per patient?