Answer Happy

Our small airline is considering starting flights from Indianapolis to Cancun. We must decide whether to set up non-stop, 1-stop, or 2-stop flights. The payoff table below projects our first- year profit ($000) depending on whether our main competitor adds a non-stop flight to their offerings within the next twelve months. Our assessment is that the probability that they will add the non-stop flight is 0.60. Use this information to answer Questions 4 - 6. Decision Non-Stop 1-Stop 2-Stop States of Nature Yes (Adds Non-Stop) No (Does Not Add Non-Stop) 20 200 90 130 -30 250 4. Based on the given information, using the expected Value method, what is the optimum decision? A. Non-Stop B. 1-Stop C. 2-Stop Use the following additional information to answer Questions 5 & 6: We are considering hiring a consulting firm to review our competitor's public financial disclosures and SEC filings to try to predict whether they will add the non-stop flight. The consultant's assessment is that the probability they will predict: Yes is 0.70 (P(Yes) = 0.70). If the prediction is Yes, the consultant gives us the following conditional probabilities: PlYes Prediction is Yes) = 0.90 P(Yes | Prediction is No) = 0.30 5. If the consultant predicts that the competitor will not add the non-stop flight, what is the optimum decision using the Expected Value Method? A. Non-Stop B. 1-Stop C. 2-Stop 6. Based on all of the given information, what is the EVSI? (Short-Answer) (9.6)