Question

Use sensitivity analysis to determine the range of demand probabilities for which each of the decision alternatives has the largest expected value. (Round your answers to four decimal places.) If the probability of strong demand falls below 690 Incorrect: Your answer is incorrect. , the discount Correct: Your answer is correct. service is the best choice. If the probability of strong demand is greater than 980 Incorrect: Your answer is incorrect. , the full price Correct: Your answer is correct. service is the best choice.

Answer 1

Answer: Hello  attached below is the missing part of your question

answer :  discount will be the preferred service, if the probability of strong demand is less than 0.5786

Explanation:

The full price ( EV ) = (960)*p + ( -490 )*(1-p)

                                = 960p + 490p - 490

                                = 1450p - 490  ------------- ( 1 )

Discount price ( EV ) =  (370)*p + (320)*(1-p)

                                  = 370p - 320p + 320

                                  = 50 p + 320 ---------------- ( 2 )

equate equation 1 and 2

1450p - 490 = 50p + 320

1450p - 50p = 320 + 490

∴ p = 810/1400 = 0.5786

Hence discount will be the preferred service, if the probability of strong demand is less than 0.5786