Marketing and operational strategy decisions

3 Basil runs a luxury hotel. He advertises summer breaks at the hotel in several different magazines. Last summer he won the opportunity to place a full-page colour advertisement in one of four magazines for the price of the usual smaller advertisement. The table shows the expected additional weekly income, in \(\pounds\), for each of the magazines for each possible type of weather. Basil wanted to maximise the additional income.

1. Explain carefully why no magazine choice can be rejected using a dominance argument.
2. Treating the choice of strategies as being a zero-sum game, find Basil's play-safe strategy and show that the game is unstable.
3. Calculate the expected additional weekly income for each magazine choice if the weather is rainy with probability 0.4 and sunny with probability 0.6 . Suppose that the weather is rainy with probability \(p\) and sunny with probability \(1 - p\).
4. Which magazine should Basil choose if the weather is certain to be sunny ( \(p = 0\) ), and which should he choose if the weather is certain to be rainy ( \(p = 1\) )?
5. Graph the expected additional weekly income against \(p\). Hence advise Basil on which magazine he should choose for the different possible ranges of values of \(p\).

2 Zoe is preparing for a Decision Maths test on two topics, Decision Analysis (D) and Simplex (S). She has to decide whether to devote her final revision session to D or to S . There will be two questions in the test, one on D and one on S . One will be worth 60 marks and the other will be worth 40 marks. Historically there is a 50\% chance of each possibility. Zoe is better at \(D\) than at \(S\). If her final revision session is on \(D\) then she would expect to score \(80 \%\) of the \(D\) marks and \(50 \%\) of the \(S\) marks. If her final session is on \(S\) then she would expect to score \(70 \%\) of the S marks and \(60 \%\) of the D marks.

1. Compute Zoe's expected mark under each of the four possible circumstances, i.e. Zoe revising \(D\) and the D question being worth 60 marks, etc.
2. Draw a decision tree for Zoe. Michael claims some expertise in forecasting which question will be worth 60 marks. When he forecasts that it will be the D question which is worth 60 , then there is a \(70 \%\) chance that the D question will be worth 60 . Similarly, when he forecasts that it will be the S question which is worth 60 , then there is a \(70 \%\) chance that the S question will be worth 60 . He is equally likely to forecast that the D or the S question will be worth 60.
3. Draw a decision tree to find the worth to Zoe of Michael's advice.

2 Graham skis each year in an Italian resort which shares a ski area with a Swiss resort. He can buy an Italian lift pass, or an international lift pass which gives him access to Switzerland as well as to Italy. For his 6-day holiday the Italian pass costs \(€ 200\) and the international pass costs \(€ 250\). If he buys an Italian pass then he can still visit Switzerland by purchasing day supplements at \(€ 30\) per day. If the weather is good during his holiday, then Graham visits Switzerland three times. If the weather is moderate he goes twice. If poor he goes once. If the weather is windy then the lifts are closed, and he is not able to go at all. In his years of skiing at the resort he has had good weather on \(30 \%\) of his visits, moderate weather on \(40 \%\), poor weather on \(20 \%\) and windy weather on \(10 \%\) of his visits.

1. Draw a decision tree to help Graham decide whether to buy an Italian lift pass or an international lift pass. Give the action he should take to minimize the EMV of his costs. When he arrives at the resort, and before he buys his lift pass, he finds that he has internet access to a local weather forecast, and to records of the past performance of the forecast. The 6-day forecast is limited to "good"/"not good", and the records show the actual weather proportions following those forecasts. It also shows that \(60 \%\) of historical forecasts have been "good" and \(40 \%\) "not good".

   \backslashbox{Forecast}{Actual}	good	moderate	poor	windy	proportion of forecasts
   good	0.4	0.5	0.1	0.0	0.6
   not good	0.15	0.25	0.35	0.25	0.4

2. Draw a decision tree to help Graham decide the worth of consulting the forecast before buying his lift pass. Give the actions he should take to minimize the EMV of his costs.