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Quantitative Methods Optimal Location

2) An airline wants to begin operations in a new city. Two cities, A and B, are being considered. The airline will locate in the city whose airport has the lowest landing fees. These are determined by demand. The cost, in tens of thousands of dollars per year, is summarized in the table below.

DEMAND

High Medium Low
s1 s2 s3
City A d1 27 25 21
City B d2 25 26 23

a) Use the optimistic method to determine the optimal location. (5 points)

b) Use the conservative method to determine the optimal location. (5 points)

c) Use the minimum/maximum regret method to determine the optimal location. (7 points)

d) Suppose the p(s1)=0.60, p(s2)=0.10 and p(s3)=0.30 Use the expected value method to determine the optimal location. (7 points)

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