Exam 18: Statistical Tools for Managers

A local business owner is a bit uncertain of the demand forecast, and is timidly approaching the capacity decision for a business he is about to open. Here's how he describes the decisions that confront him over the next two years."First, I have to choose between building a large plant initially and building a small one that has room to expand. Or I could rent now, and decide whether to build next year. That one, too, could be the large version or the small. If I build small, then after one year, I can review how good business was, and decide whether to expand. If I build large, there is no further option to enlarge."Do not concern yourself with probabilities or payoff values .Simply draw the tree that illustrates the manager's decision alternatives and the chance events that go along with them. Use standard symbols for decision tree construction, and label all parts of your diagram carefully. To simplify, assume that business in the first year, and in the second, can be only "good" or "bad."

What is the EMV for Option 1 in the following decision table?

A plant manager wants to know how much he should be willing to pay for perfect market research. Currently there are two states of nature facing his decision to expand or do nothing. Under favorable market conditions the manager would make $100,000 for the large plant and $5,000 for the small plant. Under unfavorable market conditions the large plant would lose $50,000 and the small plant would make $0. If the two states of nature are equally likely, how much should he pay for perfect information?

If a decision maker is a pessimist, what decision-making criterion is appropriate? Why?

A(n) __________ is a tabular means of analyzing decision alternatives and states of nature.

What is a conditional value?

All of the following steps are taken to analyze problems with decision trees except

An example of expected monetary value would be the payoff from selecting a particular alternative when a particular state of nature occurs.

In terms of decision theory, an occurrence or situation over which the decision maker has no control is called a(n)

If a decision maker can assign probabilities of occurrences to the states of nature, then the decision-making environment is Decision Making under Uncertainty.

A branch of a decision tree that is less favorable than other available options may be __________.

What are decision tables?

Expected monetary value is most appropriate for problem solving that takes place

What is the expected value with perfect information in the following decision table?

The difference between the expected payoff under perfect information and the maximum expected payoff under risk is

The likelihood that a decision maker will ever receive a payoff precisely equal to the EMV when making any one decision is

A decision-maker using the maximax criterion on the problem below would choose Alternative __________ because the maximum of the row maximums is __________.

The expected value of perfect information (EVPI) is the

The campus bookstore sells stadium blankets embroidered with the university crest. The blankets must be purchased in bundles of one dozen each. Each blanket in the bundle costs $65, and will sell for $90. Blankets unsold by homecoming will be clearance priced at $20. The bookstore estimates that demand patterns will follow the table below. a. Build the decision table. b. What is the maximum expected value? c. How many bundles should be purchased?

A decision-maker using the maximin criterion on the problem below would choose Alternative __________ because the maximum of the row minimums is __________.