Exam 13: Decision Making

In choosing between three new jobs, Joe MBA considers the potential payoffs over the next three years. The following table contains the payoffs, given the speed of promotion in each of the organizations. The probability of fast promotion is 0.6, and the probability of slow promotion is 0.4. Alternative Slow Promotion Fast Promotion A High-flying consultant (\ 180,000) \ 600,000 B. Utility analyst \ 200,000 \ 400,000 C. Research assistant \ 250,000 \ 260,000 -Use the information in Table A.3 and the Laplace decision rule.The weighted payoff is

The decision rule ________ chooses the alternative with the best weighted payoff.

A new product that will sell for $75.00 has variable costs of $38.00 per unit.Fixed costs of $75,000 must be incurred every year to manufacture this product.What is the annual volume to break even?

A new product is being considered that will require $45,000 in fixed costs per year.Variable costs per unit are estimated to be $12.72.The firm wants to break even if 8000 units are produced and sold per year.What should be the price?

Zipco is in serious negotiations to purchase a chunking machine that will enable them to perform their own chunking at $1 per unit.They currently have their chunking outsourced at a cost of $1.50 per unit and a fixed cost of $45,000.Their marketing team feel that they can sustain an annual volume of 10,000 units.What is the maximum fixed cost that Zipco should be willing to bear in order to perform their own chunking?

List and describe decision rules that are used for decision making under uncertainty.

The decision rule ________ chooses the alternative that is the "best of the best."

A manufacturing firm is considering whether to produce or outsource the production of a new product.If they produce the item themselves,they will incur a fixed cost of $950,000 per year,but if they outsource overseas there will be a $1.5 million cost per year.The advantage of outsourcing overseas is the variable cost of 95¢ per unit,which is a fraction of their $43/unit cost in their own union shop.Regardless where these devices are made,they will sell for $98 each.What is the break-even quantity for each alternative? Solve this problem graphically and algebraically.

Why should a decision maker engage in sensitivity analysis?

Keith Monroe is deciding among four alternatives and fleshes out the decision tree shown below.He has developed excellent estimates of payoffs but admits he has no clue about the probabilities for the two states of nature.He wants to cover all of his bases,so he would like to calculate the probability of high demand for which each alternative is superior.Analyze this situation and make recommendations for him.He promises to cut you in for 30% of the profits if you can show him how to calculate the ranges.

Choosing the alternative that is the "best of the worst" using decision making under uncertainty would be

A company that is introducing a new product has to choose between three different manufacturing methods, referred to as methods A, B, and C. Depending on the demand for the product, they have forecast different levels of revenue for the year (values are in thousands). The company has identified three possible states of nature for economic growth and named them High, Medium, and Low. High Medium Low Method A \ 80 \ 61 \ 38 Method B \ 22 \ 46 \ 100 Method C \ 9 \ 14 \ 52 Method D \ 44 \ 55 \ 24 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of Laplace?

Luvmatics plans to produce a new product. Three different models are planned: the Regular, Large, and Jumbo. The fixed costs depend on which of two locations are used; in San Francisco the fixed costs would be $2.5 million per year, but in Tuttle the fixed costs would be $1.2 million. Sale prices and variable costs for the three models are shown in the table. Table A 1 Model Regular Large Jumbo Variable Cost \ 5 /unit \ 7 /unit \ 10/ unit Sale Price \ 25/ unit \ 41 /unit \ 68/ unit -Use the information in Table A.1.How many units of the Regular size must be sold each year to break even if production is at the San Francisco plant?

A company is screening ideas for new services.Four alternative service ideas are being considered.Management identified four criteria and weighted them as follows: A = 40,B = 30,C = 20,and D = 10.They have also come up with scored values for the five alternatives and the four criteria as shown following.Management has decided that if an alternative has less than a total scored value of 600,it should automatically be rejected.Use the preference matrix technique to determine which idea should be accepted.

Decision theory is a general approach to decision making when the outcomes associated with alternatives are often in doubt.

A wily marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55.What is the best choice with the payoffs shown in the tree?

Which one of the following statements about break-even analysis for evaluating products or services is true?

Maximax is a decision rule for the pessimist.

Luvmatics plans to produce a new product. Three different models are planned: the Regular, Large, and Jumbo. The fixed costs depend on which of two locations are used; in San Francisco the fixed costs would be $2.5 million per year, but in Tuttle the fixed costs would be $1.2 million. Sale prices and variable costs for the three models are shown in the table. Table A 1 Model Regular Large Jumbo Variable Cost \ 5 /unit \ 7 /unit \ 10/ unit Sale Price \ 25/ unit \ 41 /unit \ 68/ unit -Use the information in Table A.1.If executives decide to produce at the San Francisco plant but are nervous about sales numbers,which model would provide the greatest profit at the lowest sales volumes?

A poultry farmer with an MBA is debating whether to acquire Rhode Island Reds or Buff Orpingtons to lay the free range eggs he wants to sell.The fixed costs for the Buffs would be $7500 and the variable costs per egg would be a dime per egg.The Reds would have a fixed cost of $6000 and a variable cost of fifteen cents.At what level of egg production would our well-educated poultry farmer be indifferent between Rhode Island Reds and Buff Orpingtons?