Myrtle Air Express decided to offer direct service from Cleveland to Myrtle 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 to provit 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 quarterly profits( in thousands of dollars). Suppose the management of Myrtle Air Express believes that the probability of strong demand is 0.7 and the probability of weak demand is 0.3.                                                 Demand for Service                                    Servive          Strong          Weak                                   Full-price        $960            -$490                                   Discount         $670             $320 a. What is the expected value of discount service? b. What is the probability value for strong demand that equates the expected values of the two decision alternatives? Round answer to four digits (nearest ten thousandth). c. Which decision alternative is optimal with a probability value for strong demand above that found in the previous question?

Question

Myrtle Air Express decided to offer direct service from Cleveland to Myrtle 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 to provit 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 quarterly profits( in thousands of dollars). Suppose the management of Myrtle Air Express believes that the probability of strong demand is 0.7 and the probability of weak demand is 0.3. 

                                               Demand for Service

                                   Servive          Strong          Weak

                                  Full-price        $960            -$490

                                  Discount         $670             $320

a. What is the expected value of discount service?

b. What is the probability value for strong demand that equates the expected values of the two decision alternatives? Round answer to four digits (nearest ten thousandth).

c. Which decision alternative is optimal with a probability value for strong demand above that found in the previous question?

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