To apply the optimistic, conservative, and opportunity loss approaches, we need to

calculate the expected payoff for each decision alternative under different states of
nature. The decision alternative with the highest expected payoff will be recommended.
Let's calculate the expected payoffs for each decision alternative:

Decision Alternative: d1 Expected Payoff = (Profit under Low demand * Probability of

Low demand) + (Profit under Medium demand * Probability of Medium demand) +
(Profit under High demand * Probability of High demand)

Expected Payoff (d1) = (200 * 0.2) + (100 * 0.5) + (50 * 0.3) = 40 + 50 + 15 = 105

Decision Alternative: d2 Expected Payoff (d2) = (250 * 0.2) + (200 * 0.5) + (100 * 0.3) =
50 + 100 + 30 = 180

Decision Alternative: d3 Expected Payoff (d3) = (250 * 0.2) + (300 * 0.5) + (350 * 0.3) =
50 + 150 + 105 = 305

Decision Alternative: d4 Expected Payoff (d4) = (350 * 0.2) + (500 * 0.5) + (800 * 0.3) =
70 + 250 + 240 = 560

Now let's apply the three decision-making approaches:

1. Optimistic Approach: Under the optimistic approach, we select the decision alternative
with the maximum payoff for the best-case scenario (high demand).

Optimistic Decision: d4 (Highest payoff under High demand)

2. Conservative Approach: Under the conservative approach, we select the decision

alternative with the maximum payoff for the worst-case scenario (low demand).

Conservative Decision: d1 (Highest payoff under Low demand)

3. Opportunity Loss Approach: Under the opportunity loss approach, we calculate the
opportunity loss for each decision alternative by subtracting the expected payoff of the
best decision alternative (according to the optimistic approach) from the expected
payoff of each decision alternative. We then select the decision alternative with the
minimum opportunity loss.

Opportunity Loss for d1 = 560 - 105 = 455 Opportunity Loss for d2 = 560 - 180 = 380
Opportunity Loss for d3 = 560 - 305 = 255 Opportunity Loss for d4 = 560 - 560 = 0
 Decision with the minimum opportunity loss: d4

Based on the three decision-making approaches, the recommendations are as follows:

Optimistic Approach: d4 Conservative Approach: d1 Opportunity Loss Approach: d4

Therefore, the decision that will maximize the profit varies depending on the approach
used. The optimistic approach recommends selecting decision alternative d4, the
conservative approach recommends selecting decision alternative d1, and the
opportunity loss approach also recommends selecting decision alternative d4.

Use decision tree to apply Expected value approach (EV) and show expected value of perfect
information (EVPI) when market research will cost the company $35,000.

To apply the Expected Value (EV) approach and calculate the Expected Value of Perfect
Information (EVPI) using a decision tree, let's represent the given information in a
decision tree format.

Decision Tree:

/----- d1: Low

/ m1 ---- m2 ---- d2: Medium

Market -----|

Research \ \----- d3: High

\ n1 ---- n2

\----- d4: No market research

In the decision tree, 'm' represents the favorable market research report, 'n' represents
the unfavorable market research report, and 'd1', 'd2', 'd3', and 'd4' represent the
decision alternatives.

Step 1: Assign Probabilities and Payoffs

 Probability of Market Research (m1): P(m1) = 0.77

 Probability of No Market Research (n1): P(n1) = 0.23

Under Market Research (m1):

 Probability of Favorable Report (m2): P(m2|m1) = 1.00

 Probability of Unfavorable Report (n2): P(n2|m1) = 0.00

Under No Market Research (n1):

 Probability of Favorable Report (m2): P(m2|n1) = 0.00

 Probability of Unfavorable Report (n2): P(n2|n1) = 1.00

Now let's calculate the expected payoffs for each decision alternative in each scenario:

 For d1: Low Demand

 Expected Payoff (d1|m2) = $200,000
 Expected Payoff (d1|n2) = $200,000
 Expected Payoff (d1) = P(m2) * Expected Payoff (d1|m2) + P(n2) * Expected Payoff (d1|
n2) = 1.00 * $200,000 + 0.00 * $200,000 = $200,000
 For d2: Medium Demand
 Expected Payoff (d2|m2) = $200,000
 Expected Payoff (d2|n2) = $100,000
 Expected Payoff (d2) = P(m2) * Expected Payoff (d2|m2) + P(n2) * Expected Payoff (d2|
n2) = 1.00 * $200,000 + 0.00 * $100,000 = $200,000
 For d3: High Demand
 Expected Payoff (d3|m2) = $350,000
 Expected Payoff (d3|n2) = $800,000
 Expected Payoff (d3) = P(m2) * Expected Payoff (d3|m2) + P(n2) * Expected Payoff (d3|
n2) = 1.00 * $350,000 + 0.00 * $800,000 = $350,000
 For d4: No Market Research
 Expected Payoff (d4|m2) = $350,000
 Expected Payoff (d4|n2) = $800,000
 Expected Payoff (d4) = P(m2) * Expected Payoff (d4|m2) + P(n2) * Expected Payoff (d4|
n2) = 0.00 * $350,000 + 1.00 * $800,000 = $800,000

Step 2: Calculate Expected Value (EV) We will calculate the expected value for each
decision alternative by multiplying the probability of each scenario with its respective
expected payoff and summing them up.
 Expected Value (EV) of d1 = P(m1) * Expected Payoff (d1) + P(n1) * Expected Payoff (d1)
= 0.77 * $200,000 + 0.23 * $200,000 = $154,000 + $46,000 = $200,000
 Expected Value (EV) of d2 = P(m1) * Expected Payoff (d2) + P(n1) * Expected Payoff (d2)
= 0.77 * $200,000 + 0.23 * $100,000 = $154,000 + $23,000 = $177,000
 Expected Value (EV) of d3 = P(m1) * Expected Payoff (d3) + P(n1) * Expected Payoff (d3)
= 0.77 * $350,000 + 0.23 * $800,000 = $269,500 + $184,000 = $453,500
 Expected Value (EV) of d4 = P(m1) * Expected Payoff (d4) + P(n1) * Expected Payoff (d4)
= 0.77 * $350,000 + 0.23 * $800,000 = $269,500 + $184,000 = $453,500

Step 3: Calculate Expected Value of Perfect Information (EVPI) The EVPI represents the
maximum amount a company would be willing to pay for perfect information. It is
calculated by taking the difference between the expected value under perfect
information and the expected value without perfect information.

In this case, the market research will cost $35,000. Let's calculate the EVPI:

EVPI = EV under perfect information - EV without perfect information

EV under perfect information:

 Under High Demand (d3): $350,000

 Under Low/Medium Demand (d1 and d2): $200,000

EV under perfect information = P(High Demand) * Expected Payoff (d3) +

P(Low/Medium Demand) * Expected Payoff (d1 and d2) = 0.3 * $350,000 + 0.7 *
$200,000 = $105,000 + $140,000 = $245,000

EVPI = EV under perfect information - EV without perfect information = $245,000 -

$200,000 = $45,000

Therefore, the Expected Value of Perfect Information (EVPI) is $45,000.

 Based on the analysis of the decision tree using the Expected Value (EV) approach and
the calculated Expected Value of Perfect Information (EVPI), we can comment on
whether market research should be conducted or not.

1. Expected Value (EV) Approach: Under the EV approach, the expected values for each
decision alternative are as follows:
 Expected Value (EV) of d1 (Low Demand): $200,000
 Expected Value (EV) of d2 (Medium Demand): $177,000
 Expected Value (EV) of d3 (High Demand): $453,500
 Expected Value (EV) of d4 (No Market Research): $453,500

Comparing the expected values, we can see that both d3 and d4 have the highest
expected values of $453,500. Therefore, without market research (d4), the company has
the same expected value as with market research (d3). This suggests that market
research may not significantly affect the expected value in this case.

2. Expected Value of Perfect Information (EVPI): The Expected Value of Perfect Information
(EVPI) represents the maximum amount the company would be willing to pay for perfect
information. In this case, the EVPI is calculated as $45,000.

Justification: Based on the analysis, the market research study may not be necessary or
beneficial for this decision problem. The expected values for decision alternatives with
and without market research are the same, indicating that market research does not
provide a substantial advantage in terms of expected profit.

Additionally, considering the EVPI of $45,000, which represents the maximum value the
company would pay for perfect information, it seems that the potential benefit of
market research is not worth the cost. The market research study would cost $35,000,
which exceeds the EVPI.

Therefore, from a cost-benefit perspective, it may be more reasonable for the company
to forego market research in this case and instead choose the decision alternative with
the highest expected value, which is either d3 (High Demand) or d4 (No Market
Research). This decision would maximize the expected profit while avoiding the
additional cost of market research.
 Using Bayes’ Theorem to compute branch probabilities tables for both favourable and unfavourable
scenarios (two tables)

To compute the branch probabilities tables for both the favorable and unfavorable
scenarios using Bayes' Theorem, we need to use the given conditional probabilities and
prior probabilities. Let's calculate the branch probabilities for both scenarios:

Branch Probabilities Table for Favorable Scenario:

Probability

| Favorable Report | Unfavorable Report

------------------------------------------------------------

Market Research (m1) | 1.00 | 0.00

No Market Research | 0.00 | 1.00

Branch Probabilities Table for Unfavorable Scenario:

Probability

| Favorable Report | Unfavorable Report

------------------------------------------------------------

Market Research (m1) | 0.00 | 1.00

No Market Research | 0.00 | 1.00

Explanation:

1. Branch Probabilities for the Favorable Scenario:

 For the Market Research branch (m1), the probability of a favorable report is 1.00, and
the probability of an unfavorable report is 0.00. This means that if the company
conducts market research, the probability of getting a favorable report is certain (100%),
and the probability of getting an unfavorable report is zero.
 For the No Market Research branch, since market research is not conducted, the
probability of both a favorable report and an unfavorable report is zero.
2. Branch Probabilities for the Unfavorable Scenario:
 For both the Market Research branch (m1) and the No Market Research branch, the
probability of both a favorable report and an unfavorable report is zero. This means that
regardless of whether market research is conducted or not, the probability of an
unfavorable report is certain (100%), and the probability of a favorable report is zero.

These branch probabilities tables reflect the given conditional probabilities and the fact
that the market research report's favorability or unfavorability is independent of whether
market research is conducted or not.

For the given case, let's select Virgin Airlines and focus on the assignment problem.
Specifically, we will look into the assignment of airplanes to flights.

Virgin Airlines - Assignment Problem:

Background Information: Virgin Airlines is a well-known airline company that operates

domestic and international flights. They have a fleet of airplanes and operate various
routes with different flight schedules. The company aims to maximize efficiency and
profitability by effectively assigning airplanes to flights based on factors such as
demand, route requirements, and aircraft availability.

Problem Formulation: The assignment problem for Virgin Airlines involves determining
the optimal assignment of airplanes to flights. The goal is to assign airplanes to flights in
a way that maximizes operational efficiency, meets passenger demand, and minimizes
costs.

Assumptions:

1. Each airplane can only be assigned to one flight at a time.

2. The availability of airplanes is limited to the fleet size of Virgin Airlines.
3. Flights have specific requirements in terms of airplane type, capacity, and performance
capabilities.
4. The objective is to maximize efficiency and profitability by considering factors such as
fuel consumption, maintenance costs, and passenger satisfaction.
 Model: We can formulate the assignment problem as a mathematical optimization
model, considering the following variables and constraints:

Variables:

 Binary decision variables representing the assignment of airplanes to flights. For each
airplane-flight combination, a variable takes the value 1 if the assignment is made and 0
otherwise.

Objective: Maximize the overall efficiency and profitability, which can be represented by
a combination of factors such as revenue, cost, and customer satisfaction. The specific
formulation of the objective function will depend on the company's priorities and
operational goals.

Constraints:

1. Each flight must be assigned to exactly one airplane.

2. Each airplane can only be assigned to one flight at a time.
3. Constraints related to airplane availability, including the fleet size and maintenance
schedules.
4. Constraints related to flight requirements, including the required airplane type, capacity,
and performance capabilities.

Solution Approach: To solve the assignment problem, various optimization techniques

can be employed, such as linear programming (LP), mixed-integer programming (MIP),
or heuristic algorithms. The choice of approach will depend on the complexity of the
problem and the available data.

Data Collection: To build and solve the model, data on airplane characteristics (type,
capacity, performance), flight schedules, demand forecasts, maintenance schedules, and
operational costs will be required. This information can be obtained from internal
company records, flight operations data, market research, and industry benchmarks.

By formulating and solving the assignment problem, Virgin Airlines can optimize their
airplane-flight assignments, leading to improved operational efficiency, better resource
utilization, and enhanced customer satisfaction. The specific formulation and solution
methodology will depend on the company's objectives and constraints.
The information provided is a preliminary overview of the problem formulation for
Virgin Airlines' assignment problem. However, to generate a more comprehensive and
accurate answer, additional data and analysis are necessary. The information provided
lays the foundation for the problem formulation, but the specific details and
complexities of the problem would require a more in-depth understanding of the
company's operations, fleet composition, flight schedules, demand patterns, and other
relevant factors.

To formulate and solve the assignment problem effectively, a more detailed analysis and
data collection process would be required. This could involve gathering specific data on
aircraft types, capacities, performance characteristics, flight schedules, demand
forecasts, maintenance schedules, and operational costs. Additionally, factors such as
crew availability, airport constraints, and route considerations may also need to be taken
into account.

By leveraging this additional data, various optimization techniques such as linear

programming (LP) or mixed-integer programming (MIP) could be applied to develop an
optimized assignment model. The specific formulation and solution approach would
depend on the complexity of the problem and the available data.

Therefore, while the information provided offers a starting point for formulating the
problem, a more comprehensive analysis and data collection process are necessary to
generate a complete and accurate answer.