Question

5.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

Answer 1

Pashley package holidays has to decide weather to discount its holiday to destinations abroad niksoma in response to poor customer confidence in international travel following recent military events. If they do not discount their price and customer confidence in air travel remains low the company expects to sell 1300 holidays at a profit of £60 par 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.....

=> Solution :-

Given data -

The payoff matrix for the company will be given by -

Low confidence - High confidence

P= Discount = 2500×35 5000×20

No discount= 1300×60 4200×50

This,

Max Min P= 87000 100000 100000 87500 78000 210000 210000 78000

a) By maximum strategy, company should provide no discount

b) By maximum decision rule,company should provide discount

c) By minimax decision rule ,company should provide discount

d) For equal likelihood we are helping that customers have low confidence and high confidence with equal problem

Thus,

Payoff for discount =107500/2=93750 Payoff for no discount=200000/2=144000 So, company should provide no discount.