Question

Monster airlines decided to offer direct service from Cleveland to Clearwater Beach, Florida. Management must decide between full-price service using a company’s new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon three possible levels of demand for service on Clearwater Beach: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars).

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​ Service	Demand for service
	High	Medium	Low
Full price	900	760	–430
Discount	710	650	350

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Using the minimax regret approach, which service should be implemented?

Group of answer choices

Either since there is not a clear preferred solution.

Neither since there is not a clear preferred solution.

Full Price.

Discount.

Answer 1

We tabulate the given data and find the regret table for minimax regret. Then, we find optimum decision as shown in green below:

As seen from above, the best decision is Discount.

The above solution in the form of formulas is shown below for better understanding and reference:

Answer: Discount.

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