Question 1

A firm wishing to maximize profits will increase production as long as expected marginal profit exceeds expected marginal loss.

Accepted Answer

A) True 
 B)False  True

Question 2

TABLE 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, what would be the expected profit if the student had perfect information on whether the exam will be easy or difficult?

Accepted Answer

92

Question 3

TABLE 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, how many possible states of the world are there?

Accepted Answer

2

Question 4

Look at the utility function graphed below and select the type of decision maker that corresponds to the graph.

Accepted Answer

A)  risk averter 
B)  risk neutral 
C)  risk player 
D)  risk taker 
A)  risk averter 
B)  risk neutral 
C)  risk player 
D)  risk taker

Question 5

TABLE 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, what is the opportunity loss of spending 8 hours per week on average studying for the exam when the exam turns out to be difficult?

Accepted Answer

The answer of TABLE 17-6
A student wanted to find out...

Question 6

TABLE 17-6
 A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, the optimal strategy using the maximax criterion is to study 8 hours per week on average for the exam.

Accepted Answer

A) True 
 B)False

Question 7

TABLE 17-1
The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature.
 $\begin{array}{llcc}
  \text {States  } &\text { A1 }&\text { A2 }&\text {A3  }\
\hline1&12&-2&8\
2&4&10&5
\end{array}$

$\text {where:}$$\quad $$\quad $ $\text {S1 is state of nature  1 }$$\quad $$\text {A1  is action alternative 1}$
$\quad $$\quad $$\quad $$\quad $$\quad $$\text {S2 is state of nature 2}$$\quad $$\text { A2is action alternative 2}$
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$ \text {A3 is action alternative3 } $
-Referring to Table 17-1, if the probability of S1 is 0.5, what is the EVPI for the payoff table?

Accepted Answer

A)  3 
B)  11 
C)  -3 
D)  8 
A)  3 
B)  11 
C)  -3 
D)  8

Question 8

Blossom's Flowers purchases roses for sale for Valentine's Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine's Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100, 200, or 400 dozen roses. What is the number of states of nature for the payoff table?

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  It cannot be determined. 
A)  2 
B)  3 
C)  4 
D)  It cannot be determined.

Question 9

TABLE 17-5
The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events.
 $\quad $ $\quad $ $\quad $ $\quad $ $\text {Action }$
 $\begin{array} { c c c } 
\text {  Event } & A & B \
1 & 1000 & 1200 \
2 &500 & 700\
3&300&-200
\end{array}$

Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3.
-Referring to Table 17-5, what is the optimal action using EMV?

Accepted Answer

The answer of TABLE 17-5
The following payoff table shows profits...

Question 10

At Eastern University, 60% of the students are from suburban areas, 30% are from rural areas, and 10% are from urban areas. Of the students from the suburban areas, 60% are nonbusiness majors. Of the students from the rural areas, 70% are nonbusiness majors. Of the students from the urban areas, 90% are nonbusiness majors. If a randomly selected student is not a business major, what is the probability that the student is from the urban area?

Accepted Answer

A)  0.214 
B)  0.666 
C)  0.706 
D)  0.136 
A)  0.214 
B)  0.666 
C)  0.706 
D)  0.136

Question 11

TABLE 17-4
A stock portfolio has the following returns under the market conditions listed below.
 $$\begin{array} { c c c } 
\text { Market Condition } & \text { Probability } & \text { Return } \
\hline \text { Bull } & 0.4 & \$ 200 \
\text { Stable } & 0.3 & \$ 100 \
\text { Bear } & 0.3 & - \$ 100
\end{array}$$
-Referring to Table 17-4, what is the return to risk ratio?

Accepted Answer

A)  0.64 
B)  1.18 
C)  1.08 
D)  2.00 
A)  0.64 
B)  1.18 
C)  1.08 
D)  2.00

Question 12

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year. If the expanded advertising campaign is successful, the company expects sales to increase by $1.6 million next year. If the advertising campaign fails, the company expects sales to increase by only $400,000 next year. If the advertising budget is not increased, the company expects sales to increase by $200,000. Identify the states of nature in this decision-making problem.

Accepted Answer

A)  the increase in sales dollars next year 
B)  four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations 
C)  two possibilities: (1) campaign is successful and (2) campaign is not successful 
D)  two choices: (1) increase the budget and (2) do not increase the budget 
A)  the increase in sales dollars next year 
B)  four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations 
C)  two possibilities: (1) campaign is successful and (2) campaign is not successful 
D)  two choices: (1) increase the budget and (2) do not increase the budget

Question 13

TABLE 17-5
The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events.
 $\quad $ $\quad $ $\quad $ $\quad $ $\text {Action }$
 $\begin{array} { c c c } 
\text {  Event } & A & B \
1 & 1000 & 1200 \
2 &500 & 700\
3&300&-200
\end{array}$

Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3.
-Referring to Table 17-5, what is the optimal action using maximin criterion?

Accepted Answer

The answer of TABLE 17-5
The following payoff table shows profits...

Question 14

TABLE 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, what is the expected value of perfect information?

Accepted Answer

The answer of TABLE 17-6
A student wanted to find out...

Question 15

TABLE 17-3
The following information is from 2 investment opportunities.
 $$\begin{array} { l c r } 
& A & B \
\text { Expected monetary value } & \$ 900 & \$ 600 \
\text { Standard deviation } & 100 & 50
\end{array}$$
-Referring to Table 17-3, which investment has the optimal coefficient of variation?

Accepted Answer

A)  Investment A 
B)  Investment B 
C)  The investments are equal. 
D)  It cannot be determined. 
A)  Investment A 
B)  Investment B 
C)  The investments are equal. 
D)  It cannot be determined.

Question 16

TABLE 17-6
 A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, the optimal strategy using the return-to-risk ratio criterion is to study 8 hours per week on average for the exam.

Accepted Answer

A) True 
 B)False

Question 17

The risk-______ curve represents the expected monetary value approach.

Accepted Answer

The answer of The risk-______ curve represents the expected monetary...

Question 18

TABLE 17-6
 A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 $$\begin{array} { | l | c | c | c | } 
\hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Table 17-6, the optimal strategy using the expected monetary value criterion is to study 16 hours per week on average for the exam.

Accepted Answer

A) True 
 B)False

Question 19

TABLE 17-2
The following payoff matrix is given in dollars.
 $\quad $ $\quad $ $\quad $ $\quad $$\text {Action}$ 
$\begin{array} { c c c } 
\text {  Event } & A & B \
\hline1 & 400 & 700 \
2 & 200 & 500
\end{array}$
 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Table 17-2, what is the action with the preferable coefficient of variation?

Accepted Answer

A)  Action A 
B)  Action B 
C)  either Action A or Action B 
D)  It cannot be determined. 
A)  Action A 
B)  Action B 
C)  either Action A or Action B 
D)  It cannot be determined.

Question 20

TABLE 17-2 
 The following payoff matrix is given in dollars.

$\quad $ $\quad $ $\quad $ $\quad $ $\text {Action }$
$\begin{array} { c c c } 
\text { Event }& A  & B \
\hline1 & 400 & 700 \
2 & 200 & 500
\end{array}$

Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Table 17-2, what is the best action using the maximin criterion?

Accepted Answer

A)  Action A 
B)  Action B 
C)  either Action A or Action B 
D)  It cannot be determined. 
A)  Action A 
B)  Action B 
C)  either Action A or Action B 
D)  It cannot be determined.

A firm wishing to maximize profits will increase production as long as expected marginal profit exceeds expected marginal loss.

Look at the utility function graphed below and select the type of decision maker that corresponds to the graph.

TABLE 17-4 A stock portfolio has the following returns under the market conditions listed below. Market Condition Probability Return Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Table 17-4, what is the return to risk ratio?

TABLE 17-3 The following information is from 2 investment opportunities. A B Expected monetary value \ 900 \ 600 Standard deviation 100 50 -Referring to Table 17-3, which investment has the optimal coefficient of variation?

The risk-______ curve represents the expected monetary value approach.

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action}$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the action with the preferable coefficient of variation?

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the best action using the maximin criterion?

Introduction and Data Collection

Presenting Data in Tables and Charts

Numerical Descriptive Measures

Basic Probability

Some Important Discrete Probability Distributions

The Normal Distribution and Other Continuous Distributions

Sampling Distributions and Sampling

Confidence Interval Estimation

Fundamentals of Hypothesis Testing: One-Sample Tests

Two-Sample Tests

Analysis of Variance

Chi-Square Tests and Nonparametric Tests

Simple Linear Regression

Introduction to Multiple Regression

Multiple Regression Model Building

Time-Series Forecasting and Index Numbers

Statistical Applications in Quality Management

Statistical Analysis Scenarios and Distributions

Filters

Exam 17: Decision Making

A firm wishing to maximize profits will increase production as long as expected marginal profit exceeds expected marginal loss.

Look at the utility function graphed below and select the type of decision maker that corresponds to the graph.

TABLE 17-4 A stock portfolio has the following returns under the market conditions listed below. Market Condition Probability Return Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Table 17-4, what is the return to risk ratio?

TABLE 17-3 The following information is from 2 investment opportunities. A B Expected monetary value \ 900 \ 600 Standard deviation 100 50 -Referring to Table 17-3, which investment has the optimal coefficient of variation?

The risk-______ curve represents the expected monetary value approach.

TABLE 17-2 The following payoff matrix is given in dollars. \quad \quad \quad \quad Action\text {Action}Action Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the action with the preferable coefficient of variation?

TABLE 17-2 The following payoff matrix is given in dollars. \quad \quad \quad \quad Action \text {Action }Action Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the best action using the maximin criterion?

Introduction and Data Collection

Presenting Data in Tables and Charts

Numerical Descriptive Measures

Basic Probability

Some Important Discrete Probability Distributions

The Normal Distribution and Other Continuous Distributions

Sampling Distributions and Sampling

Confidence Interval Estimation

Fundamentals of Hypothesis Testing: One-Sample Tests

Two-Sample Tests

Analysis of Variance

Chi-Square Tests and Nonparametric Tests

Simple Linear Regression

Introduction to Multiple Regression

Multiple Regression Model Building

Time-Series Forecasting and Index Numbers

Statistical Applications in Quality Management

Statistical Analysis Scenarios and Distributions

Filters

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action}$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the action with the preferable coefficient of variation?

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the best action using the maximin criterion?