The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: \[\begin{array} { | l | l | l | l | } \hline { \text { ALTERNATIVE } } & { \text { PRECIPITATION } } \\ \hline& \text { LOW } & \text { NORMAL } & \text { HIGH } \\ \hline \text { Do Nothing } & - 100 & 100 & 300 \\ \hline \text { Expand } & 350 & 500 & 200 \\ \hline \text { Build New } & 750 & 300 & 0 \\ \hline \end{array}\] If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what are expected long-run profits for the alternative he will select?

A) $140,000 B) $170,000 C) $285,000 D) $305,000 E) $475,000 A) $140,000 B) $170,000 C) $285,000 D) $305,000 E) $475,000

The construction manager for Acme Construction, Inc., must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: \[\begin{array} { | l | l | l | l | } \hline { \text { Type } } & { \text { POPULATION TREND } } \\ \hline & \text { Declining } & \text { Stable } & \text { Growing } \\ \hline \text { Single Family } & 200 & 90 & 70 \\ \hline \text { Apartments } & 70 & 170 & 90 \\ \hline \text { Condos } & - 20 & 100 & 220 \\ \hline \end{array}\] If he feels the chances of declining, stable, and growing population trends are 40 percent, 50 percent, and 10 percent, respectively, what is his expected value of perfect information?

A) $187,000 B) $132,000 C) $123,000 D) $65,000 E) $55,000 A) $187,000 B) $132,000 C) $123,000 D) $65,000 E) $55,000

Consider the following decision scenario: \[\begin{array} { c } { \text { State of Nature } } \\ \begin{array} { | l | l | l | } \hline & \text { High } & \text { Low } \\ \hline \text { Buy } & \$ 80 ^ { * } & 0 \\ \hline \text { Rent } & 70 & 30 \\ \hline \text { Lease } & 30 & 50 \\ \hline \end{array}\end{array}\] *PV for profits ($000) If P(high) is .60, the choice for maximum expected value would be:

A) buy. B) lease. C) rent. D) high. E) low. A) buy. B) lease. C) rent. D) high. E) low.

Consider the following decision scenario: \[\begin{array} { | l | l | l | l | l | } \hline { \text { Alternative } } & { \text { State of Nature } } & & \\ \hline & \# 1 & \# 2 & \# 3 & \# 4 \\ \hline \text { A } & 1 & 0 & 1 & 6 \\ \hline \text { B } & 1 & 5 & 4 & 2 \\ \hline \text { C } & 3 & 2 & 2 & 3 \\ \hline \end{array}\] If you are uncertain which state of nature will occur, and use the maximax criterion, which alternative will you select?

The answer of Consider the following decision scenario: \[\begin{array} {...

Consider the following decision scenario: \[\begin{array} { c } { \text { State of Nature } } \\ \begin{array} { | l | l | l | } \hline & \text { High } & \text { Low } \\ \hline \text { Buy } & \$ 80 ^ { * } & 0 \\ \hline \text { Rent } & 70 & 30 \\ \hline \text { Lease } & 30 & 50 \\ \hline \end{array}\end{array}\] *PV for profits ($000) The maximin strategy would be:

A) buy. B) lease. C) rent. D) high. E) low. A) buy. B) lease. C) rent. D) high. E) low.

Consider the following decision scenario: \[\begin{array} { c} { \text { State of Nature } } \\ \begin{array} { | l | l | l | l | } \hline { } & \text { High } & \text { Med. } & \text { Low } \\ \hline \text { A } & \$ 20 ^ { * } & 20 & 5 \\ \hline \text { B } & 25 & 30 & 11 \\ \hline \text { C } & 30 & 12 & 13 \\ \hline \text { D } & 10 & 12 & 12 \\ \hline \text { E } & 50 & 40 & - 28 \\ \hline \end{array}\end{array}\] *PV for profits ($000) The maximin strategy would be:

A) A. B) B. C) C. D) D. E) E. A) A. B) B. C) C. D) D. E) E.

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: $\begin{array}{|l|l|l|l|} \hline\text {SIZE}\\ \text {OF}&\text {DEMAND}\\ \hline \text { OUTLET } & \text { LOW } && \text { HIGH } \\ \hline \text { Small } & \$ 1,000 && 1,000 \\ \hline \text { Medium } & 500 && 2,500 \\ \hline \text { Large } & 0 && 3,000 \\ \hline \end{array}$ If she feels there is a 30 percent chance that demand will be high, what is her expected value of perfect information?

A) $1,600 B) $1,100 C) $1,000 D) $900 E) $500 A) $1,600 B) $1,100 C) $1,000 D) $900 E) $500

The construction manager for Acme Construction, Inc., must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: \[\begin{array} { | l | l | l | l | } \hline { \text { Type } } & { \text { POPULATION TREND } } \\ \hline & \text { Declining } & \text { Stable } & \text { Growing } \\ \hline \text { Single Family } & 200 & 90 & 70 \\ \hline \text { Apartments } & 70 & 170 & 90 \\ \hline \text { Condos } & - 20 & 100 & 220 \\ \hline \end{array}\] If he uses the minimax regret criterion, which kind of dwellings will he decide to build?

A) single family B) apartments C) condos D) either single family or apartments E) either apartments or condos A) single family B) apartments C) condos D) either single family or apartments E) either apartments or condos

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: \[\begin{array} { | l | l | l | l | } \hline { \text { ALTERNATIVE } } & { \text { PRECIPITATION } } \\ \hline& \text { LOW } & \text { NORMAL } & \text { HIGH } \\ \hline \text { Do Nothing } & - 100 & 100 & 300 \\ \hline \text { Expand } & 350 & 500 & 200 \\ \hline \text { Build New } & 750 & 300 & 0 \\ \hline \end{array}\] If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?

A) $140,000 B) $170,000 C) $285,000 D) $305,000 E) $475,000 A) $140,000 B) $170,000 C) $285,000 D) $305,000 E) $475,000

The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, medium, or high, as follows: \[\begin{array} { | l | l | l | l | } \hline \text { Bus } & { \text { DEMAND } } \\ \hline & \text { LOW } & \text { MEDIUM } & \text { HIGH } \\ \hline \text { Small } & 50 & 60 & 70 \\ \hline \text { Medium } & 40 & 80 & 90 \\ \hline \text { Large } & 20 & 50 & 120 \\ \hline \end{array}\] If he uses the Laplace criterion, which size bus will he decide to purchase?

A) small B) medium C) large D) either small or medium E) either medium or large A) small B) medium C) large D) either small or medium E) either medium or large

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: $\begin{array}{|l|l|l|l|} \hline\text {SIZE}\\ \text {OF}&\text {DEMAND}\\ \hline \text { OUTLET } & \text { LOW } && \text { HIGH } \\ \hline \text { Small } & \$ 1,000 && 1,000 \\ \hline \text { Medium } & 500 && 2,500 \\ \hline \text { Large } & 0 && 3,000 \\ \hline \end{array}$ For what range of probability that demand will be high, will she decide to lease the medium facility?

A) 0-.25 B) 0-.33 C) .25-.5 D) .33-1 E) .5-1 A) 0-.25 B) 0-.33 C) .25-.5 D) .33-1 E) .5-1

Consider the following decision scenario: \[\begin{array} { | l | l | l | l | l | } \hline { \text { Alternative } } & { \text { State of Nature } } & & \\ \hline & \# 1 & \# 2 & \# 3 & \# 4 \\ \hline \text { A } & 1 & 0 & 1 & 6 \\ \hline \text { B } & 1 & 5 & 4 & 2 \\ \hline \text { C } & 3 & 2 & 2 & 3 \\ \hline \end{array}\] If somehow you find out for certain that state of nature 4 is going to occur, which alternative will you select?

The answer of Consider the following decision scenario: \[\begin{array} {...

Exam 5: Extension: Decision Theory

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: ALTERNATIVE PRECIPITATION LOW NORMAL HIGH Do Nothing -100 100 300 Expand 350 500 200 Build New 750 300 0 If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what are expected long-run profits for the alternative he will select?

(Multiple Choice)

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Question 41

The construction manager for Acme Construction, Inc., must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: Type POPULATION TREND Declining Stable Growing Single Family 200 90 70 Apartments 70 170 90 Condos -20 100 220 If he feels the chances of declining, stable, and growing population trends are 40 percent, 50 percent, and 10 percent, respectively, what is his expected value of perfect information?

(Multiple Choice)

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Question 42

A decision maker's worst option has an expected value of $1,000, and her best option has an expected value of $3,000. With perfect information, the expected value would be $5,000. The decision maker has discovered a firm that will, for a fee of $1,000, make her position-risk free. How much better off will her firm be if she takes this firm up on its offer?

(Multiple Choice)

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Question 43

Consider the following decision scenario: State of Nature High Low Buy \ 8 0 Rent 70 30 Lease 30 50 *PV for profits ($000) If P(high) is .60, the choice for maximum expected value would be:

(Multiple Choice)

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Question 44

Consider the following decision scenario: Alternative State of Nature \#1 \#2 \#3 \#4 A 1 0 1 6 B 1 5 4 2 C 3 2 2 3 If you are uncertain which state of nature will occur, and use the maximax criterion, which alternative will you select?

(Short Answer)

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Question 45

Consider the following decision scenario: State of Nature High Low Buy \ 8 0 Rent 70 30 Lease 30 50 *PV for profits ($000) The maximin strategy would be:

(Multiple Choice)

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Question 46

Consider the following decision scenario: State of Nature High Med. Low A \ 2 20 5 B 25 30 11 C 30 12 13 D 10 12 12 E 50 40 -28 *PV for profits ($000) The maximin strategy would be:

(Multiple Choice)

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Question 47

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the decision alternative to write the economics book?

(Multiple Choice)

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Question 48

The maximin approach involves choosing the alternative with the highest payoff.

(True/False)

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Question 49

The maximax approach is a pessimistic strategy.

(True/False)

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Question 50

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced. What is the expected value of selecting script 1?

(Multiple Choice)

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Question 51

Which of the following is not a stage in the decision-making process?

(Multiple Choice)

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Question 52

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: SIZE OF DEMAND OUTLET LOW HIGH Small \ 1,000 1,000 Medium 500 2,500 Large 0 3,000 If she feels there is a 30 percent chance that demand will be high, what is her expected value of perfect information?

(Multiple Choice)

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Question 53

The construction manager for Acme Construction, Inc., must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: Type POPULATION TREND Declining Stable Growing Single Family 200 90 70 Apartments 70 170 90 Condos -20 100 220 If he uses the minimax regret criterion, which kind of dwellings will he decide to build?

(Multiple Choice)

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Question 54

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: ALTERNATIVE PRECIPITATION LOW NORMAL HIGH Do Nothing -100 100 300 Expand 350 500 200 Build New 750 300 0 If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?

(Multiple Choice)

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Question 55

The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, medium, or high, as follows: Bus DEMAND LOW MEDIUM HIGH Small 50 60 70 Medium 40 80 90 Large 20 50 120 If he uses the Laplace criterion, which size bus will he decide to purchase?

(Multiple Choice)

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Question 56

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced. What is the expected value of selecting script 2?

(Multiple Choice)

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Question 57

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: SIZE OF DEMAND OUTLET LOW HIGH Small \ 1,000 1,000 Medium 500 2,500 Large 0 3,000 For what range of probability that demand will be high, will she decide to lease the medium facility?

(Multiple Choice)

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Question 58

Consider the following decision scenario: Alternative State of Nature \#1 \#2 \#3 \#4 A 1 0 1 6 B 1 5 4 2 C 3 2 2 3 If somehow you find out for certain that state of nature 4 is going to occur, which alternative will you select?

(Short Answer)

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Question 59

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

(Multiple Choice)

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Question 60

Consider the following decision scenario: State of Nature High Low Buy \ 8 0 Rent 70 30 Lease 30 50 *PV for profits ($000) If P(high) is .60, the choice for maximum expected value would be:

Consider the following decision scenario: Alternative State of Nature \#1 \#2 \#3 \#4 A 1 0 1 6 B 1 5 4 2 C 3 2 2 3 If you are uncertain which state of nature will occur, and use the maximax criterion, which alternative will you select?

Consider the following decision scenario: State of Nature High Low Buy \ 8 0 Rent 70 30 Lease 30 50 *PV for profits ($000) The maximin strategy would be:

Consider the following decision scenario: State of Nature High Med. Low A \ 2 20 5 B 25 30 11 C 30 12 13 D 10 12 12 E 50 40 -28 *PV for profits ($000) The maximin strategy would be:

The maximin approach involves choosing the alternative with the highest payoff.

The maximax approach is a pessimistic strategy.

Which of the following is not a stage in the decision-making process?

Consider the following decision scenario: Alternative State of Nature \#1 \#2 \#3 \#4 A 1 0 1 6 B 1 5 4 2 C 3 2 2 3 If somehow you find out for certain that state of nature 4 is going to occur, which alternative will you select?

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

Introduction to Operations Management

Competitiveness, Strategy, and Productivity

Forecasting

Product and Service Design

Extension: Reliability

Strategic Capacity Planning for Products and Services

Process Selection and Facility Layout

Work Design and Measurement

Extension: Learning Curves

Location Planning and Analysis

Extension: The Transportation Model

Management of Quality

Quality Control

Extension: Acceptance Sampling

Aggregate Planning and Master Scheduling

MRP and ERP

Inventory Management

Jit and Lean Operations

Extension: Maintenance

Supply Chain Management

Scheduling

Project Management

Management of Waiting Lines

Linear Programming

Filters