Sigma Airway: In 2021, Sigma Airway was considering the possibility of adding a new economy class to the two existing classes - first class and tourist -in the hope that the total contribution to its profit from fares might be increased. Ms. Somsri, the marketing manager for Sigma had to decide within the next week whether or not to introduce such as a change. If introduced, the new class would have to be retained for at least 100 days. Somsri felt that the essential question to be answered in her analysis was whether such a deal would attract sufficient new customers to offset the loss of revenue from existing tourist customers switching to the lower-contribution economy class. Somsri, having had some experience with these problems in the past, made the following assessments: On an average day she felt that there was a 1 in 3 chance that 200 new customers would be attracted to the new class, a 1 in 3 chance at the figure would be around 100 new customers, and a 1 in 3 chance that it would be about 50. Similarly, Somsri felt there was a 1 in 3 chance that each day 100 people would switch from the existing tourist class to the new economy class, a 1 in 3 chance that there would be about 50 switchers, and a 1 in 3 chance that there would be about 25 The Cost Accounting Department estimated that the tourist fare contributed $100 to overhead and profit and the economy fare about $40. Somsri thought that the fixed cost of introducing the new class would be about $50,000. Somsri felt that both she and Sigma could afford to “play the averages” in making this decision. Draw a decision tree for Somsri’s decision problem

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Sigma Airway: In 2021, Sigma Airway was considering the possibility of adding a new economy class to the two existing classes - first class and tourist -in the hope that the total contribution to its profit from fares might be increased. Ms. Somsri, the marketing manager for Sigma had to decide within the next week whether or not to introduce such as a change. If introduced, the new class would have to be retained for at least 100 days. Somsri felt that the essential question to be answered in her analysis was whether such a deal would attract sufficient new customers to offset the loss of revenue from existing tourist customers switching to the lower-contribution economy class.

Somsri, having had some experience with these problems in the past, made the following assessments:

On an average day she felt that there was a 1 in 3 chance that 200 new customers would be attracted to the new class, a 1 in 3 chance at the figure would be around 100 new customers, and a 1 in 3 chance that it would be about 50.
Similarly, Somsri felt there was a 1 in 3 chance that each day 100 people would switch from the existing tourist class to the new economy class, a 1 in 3 chance that there would be about 50 switchers, and a 1 in 3 chance that there would be about 25
The Cost Accounting Department estimated that the tourist fare contributed $100 to overhead and profit and the economy fare about $40.
Somsri thought that the fixed cost of introducing the new class would be about $50,000.
Somsri felt that both she and Sigma could afford to “play the averages” in making this decision.

Draw a decision tree for Somsri’s decision problem

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