Exam 17: Decision Making

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 payoff in this decision-making problem.

Instruction 17-4 The following information is from two investment opportunities. A B Expectedmonetary \ 900 \ 600 value standarddeviation 100 50 -Referring to Instruction 17-4,which investment has the optimal return to risk ratio (RTRR)?

In portfolio analysis,the _______is the reciprocal of the return to risk ratio.

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. -The opportunity loss for buying 200 dozen roses and selling 100 dozen roses at the full price is _______.

Instruction 17-2 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 mean 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Instruction 17-2,what is the expected opportunity loss of spending 8 hours per week on average studying for the exam?

Instruction 17-3 The following payoff table shows profits associated with a set of three alternatives under two possible events. States A1 A2 AB 1 12 -2 8 2 4 10 5 where: S1 is event 1 A1 is action alternative 1 S2 is event 2 A2 is action alternative 2 A3 is action alternative 3 -Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected value of perfect information (EVPI)for the payoff table is _______.

Instruction 17-3 The following payoff table shows profits associated with a set of three alternatives under two possible events. States A1 A2 AB 1 12 -2 8 2 4 10 5 where: S1 is event 1 A1 is action alternative 1 S2 is event 2 A2 is action alternative 2 A3 is action alternative 3 -Referring to Instruction 17-3,if the probability of S1 is 0.5,then the coefficient of variation for A1 is _______.

Instruction 17-2 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 mean 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Instruction 17-2,what is the expected monetary value of spending 16 hours per week on average studying for the exam?

Instruction 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 mean 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Instruction 17-6,the optimal strategy using the coefficient of variation criterion is to study 8 hours per week on average for the exam.

The curve for the _______ will show a rapid increase in utility for initial amounts of money followed by a gradual levelling off for increasing dollar amounts.

Which of the following is NOT a decision-making criterion?

Instruction 17-4 The following information is from two investment opportunities. A B Expectedmonetary \ 900 \ 600 value standarddeviation 100 50 -Referring to Instruction 17-4,what is the coefficient of variation for investment A?

Instruction 17-3 The following payoff table shows profits associated with a set of three alternatives under two possible events. States A1 A2 AB 1 12 -2 8 2 4 10 5 where: S1 is event 1 A1 is action alternative 1 S2 is event 2 A2 is action alternative 2 A3 is action alternative 3 -Referring to Instruction 17-3,if the probability of S1 is 0.2 and S2 is 0.8,then the expected opportunity loss (EOL)for A1 is _______.

For a potential investment of $5,000,a portfolio has an expected monetary value (EMV)of $1,000 and a standard deviation of $100.The return to risk ratio (RTRR)is _______.

Instruction 17-7 The following payoff table shows profits associated with a set of two alternatives under three possible events. Event Action A Action B 1 1000 1200 2 500 700 3 300 -200 -Referring to Instruction 17-7,what is the optimal action using the return to risk ratio?

Instruction 17-7 The following payoff table shows profits associated with a set of two alternatives under three possible events. Event Action A Action B 1 1000 1200 2 500 700 3 300 -200 -Referring to Instruction 17-7,what is the optimal action using the coefficient of variation?

Instruction 17-7 The following payoff table shows profits associated with a set of two alternatives under three possible events. Event Action A Action B 1 1000 1200 2 500 700 3 300 -200 -Referring to Instruction 17-7,what is the expected profit under certainty (EPU)for this problem?

Instruction 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 mean 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Instruction 17-7,the optimal strategy using the expected opportunity loss (EOL)criterion is to study 8 hours per week on average for the exam.

Instruction 17-3 The following payoff table shows profits associated with a set of three alternatives under two possible events. States A1 A2 AB 1 12 -2 8 2 4 10 5 where: S1 is event 1 A1 is action alternative 1 S2 is event 2 A2 is action alternative 2 A3 is action alternative 3 -Referring to Instruction 17-3,the opportunity loss for A3 when S2 occurs is _______.

Instruction 17-1 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 mean 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Instruction 17-1,how many possible events are there?