Question

Set up both the vector and state probabilites and the matrix of transition probabilities given the...

Set up both the vector and state probabilites and the matrix of transition probabilities given the following: store 1 currently has 40% of market and store 2 has 60%. In each period store 1 customers have an 80% of returning and 20% to switching to store 2. IN each period store 2 has a 90% chance customers return and 10% to switch to store 1. Also find vector 2

Homework Answers

Answer #1

We are given that the store 1 has 40% of market and store 2 has 60%, therefore the state probabilities here are given as:

p1 = 0.4 and p2 = 0.6

Therefore the vector here is given as: (0.4 0.6)

From the given conditions:  In each period store 1 customers have an 80% of returning and 20% to switching to store 2. IN each period store 2 has a 90% chance customers return and 10% to switch to store 1, the matrix of transition probabilities here is given as:

Now from the given vector 1 and transition probability matrix, the vector 2 is given as:

p1 = 0.8*0.4 + 0.1*0.6 = 0.32 + 0.06 = 0.38
p2 = 0.2*0.4 + 0.9*0.6 = 0.08 + 0.54 = 0.62

Therefore the vector 2 is given as: (0.38 0.62)

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