Question 1

Which of the following is true regarding decision making environments?

Accepted Answer

A) Most business decisions are made in an environment of uncertainty. 
B) Most business decisions are made in an environment of certainty. 
C) Certainty means that probabilities of each possible outcome are known. 
D) Uncertainty means that probabilities of each possible outcome are known. 
A) Most business decisions are made in an environment of uncertainty. 
B) Most business decisions are made in an environment of certainty. 
C) Certainty means that probabilities of each possible outcome are known. 
D) Uncertainty means that probabilities of each possible outcome are known.

Question 2

Decision analysis is essential for all business decisions.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not a factor affecting the complexity of a decision?

Accepted Answer

A) The number of alternatives 
B) The number of possible outcomes 
C) The values of the various payoffs 
D) The general level of uncertainty 
A) The number of alternatives 
B) The number of possible outcomes 
C) The values of the various payoffs 
D) The general level of uncertainty

Question 4

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation.   It estimates the following probabilities for the respective levels of demand.   If the bakery had perfect information about that day's demand,the expected value of perfect information is 60.

Accepted Answer

A) True 
 B)False

Question 5

Assume that you have accepted a job with a new business venture and can choose among three methods of compensation.
a.Be paid $150,000 annually
b.Be paid $75,000 annually plus receive 10 percent of the profits
c.Be paid $0 annually and receive 20 percent of the profits
Since this is a new business,there is uncertainty about how much profit there will be.It is expected that one of the following states of nature will result:
∙ business is very good: profit = $2 million
∙ business is moderate: profit = $750,000
∙ business is poor: profit = $0
Create the payoff table for your total annual compensation that shows all alternatives and states of nature.Then determine the best decision using each of the following methods: maximax,maximin,and minimax regret.

Accepted Answer

The payoff table is shown below. @#IMG-DLM& Maxima

Question 6

Which of the following is a probabilistic decision criterion?

Accepted Answer

A) Maximax 
B) Maximin 
C) Minimax regret 
D) Expected value 
A) Maximax 
B) Maximin 
C) Minimax regret 
D) Expected value

Question 7

In using the expected value criterion suppose that there are three possible outcomes (states of nature).If the probability of outcome1 is 0.4 and the probability of outcome 2 is 0.5,then what is the probability of outcome 3?

Accepted Answer

A) P(outcome 3)= 0.1 
B) P(outcome 3)cannot be determined 
C) P(outcome 3)= 1.0 
D) P(outcome 3)< 0 
A) P(outcome 3)= 0.1 
B) P(outcome 3)cannot be determined 
C) P(outcome 3)= 1.0 
D) P(outcome 3)< 0

Question 8

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless.
If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300.
After drawing out the decision tree from situation above,there will be a total of three branching points including the initial decision.

Accepted Answer

A) True 
 B)False

Question 9

An investor has $1000 to invest and is considering the four alternatives shown below.How well each investment does depends on the state of the economy.The payoff table is shown below.   Based on the minimax regret criterion,which investment should be chosen?

Accepted Answer

A) Stock A 
B) Stock B 
C) Stock C 
D) Money market 
A) Stock A 
B) Stock B 
C) Stock C 
D) Money market

Question 10

Uncertainty in the decision environment is defined to mean the decision maker is uncertain which alternative to choose.

Accepted Answer

A) True 
 B)False

Question 11

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below.   Suppose that Julie estimates the following probabilities for each level of restaurant popularity.   The expected value of Location 1 is 120.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is true?

Accepted Answer

A) Maximax and maximin always lead to the same decision. 
B) Maximax and maximin always lead to different decisions. 
C) Minimax regret and maximin are essentially the same. 
D) Maximax and maximin may or may not lead to the same decision. 
A) Maximax and maximin always lead to the same decision. 
B) Maximax and maximin always lead to different decisions. 
C) Minimax regret and maximin are essentially the same. 
D) Maximax and maximin may or may not lead to the same decision.

Question 13

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless. If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300.
After folding back the tree which of the following is correct?

Accepted Answer

A) Choose to repair for an expected cost of $300 
B) Choose to repair for an expected cost of $440 
C) Choose to replace for an expected cost of $275 
D) Choose to replace for an expected cost of $425 
A) Choose to repair for an expected cost of $300 
B) Choose to repair for an expected cost of $440 
C) Choose to replace for an expected cost of $275 
D) Choose to replace for an expected cost of $425

Question 14

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation.   The opportunity loss for making many donuts (A3)and having low demand (S3)is:

Accepted Answer

A) 0. 
B) -50. 
C) 150. 
D) 400. 
A) 0. 
B) -50. 
C) 150. 
D) 400.

Question 15

Regret is another term for opportunity loss because it refers to how much a decision maker would regret having made a particular decision after the state of nature is known.

Accepted Answer

A) True 
 B)False

Question 16

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation.   It estimates the following probabilities for the respective levels of demand.   The overall expected value or payoff of making this decision under uncertainty is 190.

Accepted Answer

A) True 
 B)False

Question 17

There are two main categories of decision criteria; nonprobabilistic and probabilistic.

Accepted Answer

A) True 
 B)False

Question 18

To "fold back" the decision tree means to show the events and outcomes in the reverse order.

Accepted Answer

A) True 
 B)False

Question 19

In using a decision tree,future decisions have no influence on the current decision.

Accepted Answer

A) True 
 B)False

Question 20

In a decision tree,the decision maker can choose the desired branch at all branch points.

Accepted Answer

A) True 
 B)False

Which of the following is true regarding decision making environments?

Decision analysis is essential for all business decisions.

Which of the following is not a factor affecting the complexity of a decision?

Which of the following is a probabilistic decision criterion?

In using the expected value criterion suppose that there are three possible outcomes (states of nature).If the probability of outcome1 is 0.4 and the probability of outcome 2 is 0.5,then what is the probability of outcome 3?

An investor has $1000 to invest and is considering the four alternatives shown below.How well each investment does depends on the state of the economy.The payoff table is shown below. Based on the minimax regret criterion,which investment should be chosen?

Uncertainty in the decision environment is defined to mean the decision maker is uncertain which alternative to choose.

Which of the following is true?

Regret is another term for opportunity loss because it refers to how much a decision maker would regret having made a particular decision after the state of nature is known.

There are two main categories of decision criteria; nonprobabilistic and probabilistic.

To "fold back" the decision tree means to show the events and outcomes in the reverse order.

In using a decision tree,future decisions have no influence on the current decision.

In a decision tree,the decision maker can choose the desired branch at all branch points.

The Where, why, and How of Data Collection

Graphs,charts and Tablesdescribing Your Data

Describing Data Using Numerical Measures

Using Probability and Probability Distributions

Discrete Probability Distributions

Introduction to Continuous Probability Distributions

Introduction to Sampling Distributions

Estimating Single Population Parameters

Introduction to Hypothesis Testing

Estimation and Hypothesis Testing for Two Population Parameters

Hypothesis Tests and Estimation for Population Variances

Analysis of Variance

Goodness-Of-Fit Tests and Contingency Analysis

Introduction to Linear Regression and Correlation Analysis

Multiple Regression Analysis and Model Building

Analyzing and Forecasting Time-Series Data

Introduction to Nonparametric Statistics

Introduction to Quality and Statistical Process Control

Filters

Exam 19: Introduction to Decision Analysis

Which of the following is true regarding decision making environments?

Decision analysis is essential for all business decisions.

Which of the following is not a factor affecting the complexity of a decision?

Which of the following is a probabilistic decision criterion?

In using the expected value criterion suppose that there are three possible outcomes (states of nature).If the probability of outcome1 is 0.4 and the probability of outcome 2 is 0.5,then what is the probability of outcome 3?

An investor has $1000 to invest and is considering the four alternatives shown below.How well each investment does depends on the state of the economy.The payoff table is shown below. Based on the minimax regret criterion,which investment should be chosen?

Uncertainty in the decision environment is defined to mean the decision maker is uncertain which alternative to choose.

Which of the following is true?

Regret is another term for opportunity loss because it refers to how much a decision maker would regret having made a particular decision after the state of nature is known.

There are two main categories of decision criteria; nonprobabilistic and probabilistic.

To "fold back" the decision tree means to show the events and outcomes in the reverse order.

In using a decision tree,future decisions have no influence on the current decision.

In a decision tree,the decision maker can choose the desired branch at all branch points.

The Where, why, and How of Data Collection

Graphs,charts and Tablesdescribing Your Data

Describing Data Using Numerical Measures

Using Probability and Probability Distributions

Discrete Probability Distributions

Introduction to Continuous Probability Distributions

Introduction to Sampling Distributions

Estimating Single Population Parameters

Introduction to Hypothesis Testing

Estimation and Hypothesis Testing for Two Population Parameters

Hypothesis Tests and Estimation for Population Variances

Analysis of Variance

Goodness-Of-Fit Tests and Contingency Analysis

Introduction to Linear Regression and Correlation Analysis

Multiple Regression Analysis and Model Building

Analyzing and Forecasting Time-Series Data

Introduction to Nonparametric Statistics

Introduction to Quality and Statistical Process Control

Filters