Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The highest value for the equally likely criterion is __________; this occurs with alternative __________. $$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | } 
\hline \text { Alternatives } & \underline { \mathrm { S } } \underline { 1 } & \underline { \mathrm { S } } 2 \
\hline \text { Option 1 } & \$ 10,000 & \$ 30,000 \
\hline \text { Option 2 } & \$ 5,000 & \$ 45,000 \
\hline \text { Option 3 } & \$ - 4,000 & \$ 60,000 \
\hline
\end{array}$$

Accepted Answer

A)  $20,000; Option 1 
B)  $25,000; Option 2 
C)  $28,000; Option 3 
D)  $32,000; Option 3 
E)  $60,000; Option 3 
A)  $20,000; Option 1 
B)  $25,000; Option 2 
C)  $28,000; Option 3 
D)  $32,000; Option 3 
E)  $60,000; Option 3

Question 3

Describe the meaning of EVPI. Provide an example in which EVPI can help a manager.

Accepted Answer

EVPI is defined as the expected value of

Question 4

Decision trees

Accepted Answer

A)  give more accurate solutions than decision tables 
B)  give less accurate solutions than decision tables 
C)  are especially powerful when a sequence of decisions must be made 
D)  are rarely used because one needs specialized software to graph them 
E)  are too complex to be used by decision makers 
A)  give more accurate solutions than decision tables 
B)  give less accurate solutions than decision tables 
C)  are especially powerful when a sequence of decisions must be made 
D)  are rarely used because one needs specialized software to graph them 
E)  are too complex to be used by decision makers

Question 5

The campus bookstore sells highlighters that it purchases by the case. Cost per case, including shipping and handling, is $200. Revenue per case is $350. Any cases unsold will be discounted and sold at $175. The bookstore has estimated that demand will follow the pattern below
 $$\begin{array} { | c | c | } 
\hline \text { Demand level } & \text { Probability } \
\hline 10 \text { cases } & 20 \text { percent } \
\hline 11 \text { cases } & 20 \text { percent } \
\hline 12 \text { cases } & 40 \text { percent } \
\hline 13 \text { cases } & 15 \text { percent } \
\hline 14 \text { cases } & 5 \text { percent } \
\hline
\end{array}$$ 
a. Construct the bookstore's payoff table.
b. How many cases should the bookstore stock in order to maximize profit?
c. How would your answer differ if the clearance price were not $175 per case but $225 per case?
 (It is not necessary to re-solve the problem to answer this.)

Accepted Answer

(a) The Excel OM table is below.
(b) The

Question 6

The expected value with perfect information assumes that all states of nature are equally likely.

Accepted Answer

A) True 
 B)False

Question 7

__________ is the criterion for decision making under uncertainty that finds an alternative that maximizes the minimum outcome or consequences.

Accepted Answer

The answer of __________ is the criterion for decision making...

Question 8

Identify, in order, the six steps of analytical decision making.

Accepted Answer

1. Clearly define the problem and factor

Question 9

What is the EMV for Option 2 in the following decision table?
$$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | } 
\hline \text { Alternatives } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } \
\hline \mathrm { p } & .6 & .4 \
\hline \text { Option 1 } & 200 & 300 \
\hline \text { Option } 2 & 50 & 350 \
\hline
\end{array}$$

Accepted Answer

A)  50 
B)  100 
C)  170 
D)  200 
E)  350 
A)  50 
B)  100 
C)  170 
D)  200 
E)  350

Question 10

The decision criterion that would be used by an optimistic decision maker solving a problem under conditions of uncertainty would be the

Accepted Answer

A)  expected monetary value criterion 
B)  equally likely criterion 
C)  maximax criterion 
D)  maximin criterion 
E)  minimin criterion 
A)  expected monetary value criterion 
B)  equally likely criterion 
C)  maximax criterion 
D)  maximin criterion 
E)  minimin criterion

Question 11

The maximax criterion of decision making requires that all decision alternatives have an equal probability of occurrence.

Accepted Answer

A) True 
 B)False

Question 12

Steve Gentry, the operations manager of Baja Fabricators, wants to purchase a new profiling machine (it cuts compound angles on the ends of large structural pipes used in the fabrication yard). However, because the price of crude oil is depressed, the market for such equipment is down. Steve believes that the market will improve in the near future and that the company should expand its capacity. The table below displays the three equipment options he is currently considering, and the profit he expects each one to yield over a two-year period. The consensus forecast at Baja is that there is about a 30% probability that the market will pick up "soon" (within 3 to 6 months) and a 70% probability that the improvement will come "later" (in 9 to 12 months, perhaps longer).
 $$\begin{array}{l}
\text { Profit from Capacity Investment (in Dollars) }\
\begin{array} { | l | c | c | } 
\hline \text { Equipment Option } & \begin{array} { c } 
\text { Market picks up } \
\text { "soon" } \
p = 0.30
\end{array} & \begin{array} { c } 
\text { Market picks up } \
\text { "later" } \
p = 0.70
\end{array} \
\hline \text { Manual Machine } & - 120000 & 210000 \
\hline \text { NC Machine } & 140000 & 160000 \
\hline \text { CNC Machine } & 200000 & - 200000 \
\hline
\end{array}
\end{array}$$ 
a. Calculate the expected monetary value of each decision alternative.
b. Which equipment option should Steve take?

Accepted Answer

(a) The expected monetary valu

Question 13

What are decision tables?

Accepted Answer

Decision tables are

Question 14

__________ is the expected payout or value of a variable that has different possible states of nature, each with an associated probability.

Accepted Answer

Expected m

Question 15

Suppose a manufacturing plant is considering three options for expansion. The first one is to expand into a new plant (large) , the second to add on third-shift to the daily schedule (medium) , and the third to do nothing (small) . There are three possibilities for demand. These are high, medium, and low with each having an equal likelihood of occurring. Suppose that the profits for the expansion plans are as follows (respective to high, medium, low demand). The large expansion profits are $100000, $10000, -$10000, the medium expansion choice $40000, $40000, $5000 and the small expansion choice $15000, $15000, $15000. Calculate the EMV of each choice. Which of the expansion plans should the manager choose?

Accepted Answer

Student responses may include a decision

Question 16

When solving decision trees, what phrase represents the act of dropping an alternative from consideration because it is less favorable than another available option?

Accepted Answer

A)  cut the leaf 
B)  open the hatch 
C)  shake the tree 
D)  punt the ball 
E)  prune the branch 
A)  cut the leaf 
B)  open the hatch 
C)  shake the tree 
D)  punt the ball 
E)  prune the branch

Question 17

A problem that involves a sequence of decisions

Accepted Answer

A)  cannot be analyzed with expected monetary value 
B)  can be better analyzed with a decision tree than by a decision table 
C)  must be analyzed in the same order that the decisions are made 
D)  cannot be analyzed with decision tree software 
E)  can only be analyzed using decision making under certainty 
A)  cannot be analyzed with expected monetary value 
B)  can be better analyzed with a decision tree than by a decision table 
C)  must be analyzed in the same order that the decisions are made 
D)  cannot be analyzed with decision tree software 
E)  can only be analyzed using decision making under certainty

Question 18

In a decision tree, the expected monetary values are computed by working from right to left.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which technique results in an optimistic decision?
 Why?

Accepted Answer

Maximax is the optim

Exam 21: Decision-Making Tools

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

Describe the meaning of EVPI. Provide an example in which EVPI can help a manager.

Decision trees

The expected value with perfect information assumes that all states of nature are equally likely.

__________ is the criterion for decision making under uncertainty that finds an alternative that maximizes the minimum outcome or consequences.

Identify, in order, the six steps of analytical decision making.

The decision criterion that would be used by an optimistic decision maker solving a problem under conditions of uncertainty would be the

The maximax criterion of decision making requires that all decision alternatives have an equal probability of occurrence.

What are decision tables?

__________ is the expected payout or value of a variable that has different possible states of nature, each with an associated probability.

When solving decision trees, what phrase represents the act of dropping an alternative from consideration because it is less favorable than another available option?

A problem that involves a sequence of decisions

In a decision tree, the expected monetary values are computed by working from right to left.

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

Which technique results in an optimistic decision? Why?

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