Question 1

Making a good decision

Accepted Answer

A) requires probabilities for all states of nature. 
B) requires a clear understanding of decision alternatives,states of nature,and payoffs. 
C) implies that a desirable outcome will occur. 
D) All of the alternatives are true. 
A) requires probabilities for all states of nature. 
B) requires a clear understanding of decision alternatives,states of nature,and payoffs. 
C) implies that a desirable outcome will occur. 
D) All of the alternatives are true.

Question 2

After all probabilities and payoffs are placed on a decision tree,the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes.

Accepted Answer

A) True 
 B)False

Question 3

An appliance dealer must decide how many (if any)new microwave ovens to order for next month.The ovens cost $220 and sell for $300.Because the oven company is coming out with a new product line in two months,any ovens not sold next month will have to be sold at the dealer's half price clearance sale.Additionally,the appliance dealer feels he suffers a loss of $25 for every oven demanded when he is out of stock.On the basis of past months' sales data,the dealer estimates the probabilities of monthly demand (D)for 0,1,2,or 3 ovens to be .3,.4,.2,and .1,respectively.
The dealer is considering conducting a telephone survey on the customers' attitudes towards microwave ovens.The results of the survey will either be favorable (F),unfavorable (U)or no opinion (N).The dealer's probability estimates for the survey results based on the number of units demanded are:
   
a.What is the dealer's optimal decision without conducting the survey?
b.What is the EVPI?
c.Based on the survey results what is the optimal decision strategy for the dealer?
d.What is the maximum amount he should pay for this survey?

Accepted Answer

a. Order one oven: EV = $25.00

Question 4

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s1 over which each of the decision alternatives has its largest expected value.

Accepted Answer

EV(d₁)and EV(d₂)in

Question 5

Super Cola is also considering the introduction of a root beer drink.The company feels that the probability that the product will be a success is .6.The payoff table is as follows:
   The company has a choice of two research firms to obtain information for this product.Stanton Marketing has market indicators,I1 and I2 for which P(I1SYMBOL 189 \f "Symbol"s1)= .7 and P(I1SYMBOL 189 \f "Symbol"s2)= .4.New World Marketing has indicators J1 and J2 for which P(J1SYMBOL 189 \f "Symbol"s1)= .6 and P(J1SYMBOL 189 \f "Symbol"s2)= .3. 
a.What is the optimal decision if neither firm is used? Over what probability of success range is this decision optimal?
b.What is the EVPI?
c.Find the EVSIs and efficiencies for Stanton and New World.
d.If both firms charge $5,000,which firm should be hired?
e.If Stanton charges $10,000 and New World charges $4,000,which firm should Super Cola hire? Why?

Accepted Answer

a.Introduce root beer;p < .483
b.EVPI =

Question 6

Fold back the decision tree and state what strategy should be followed.

Accepted Answer

a.If C happens,selec

Question 7

The table shows both prospective profits and losses for a company,depending on what decision is made and what state of nature occurs.Use the information to determine what the company should do.
   
a.if an optimistic strategy is used.
b.if a conservative strategy is used.
c.if minimax regret is the strategy.

Accepted Answer

a.d₃ b.d₁ c.

Question 8

To find the EVSI,

Accepted Answer

A) use the EVPI to calculate sample information probabilities. 
B) use indicator probabilities to calculate prior probabilities. 
C) use prior and sample information probabilities to calculate revised probabilities. 
D) use sample information to revise the sample information probabilities. 
A) use the EVPI to calculate sample information probabilities. 
B) use indicator probabilities to calculate prior probabilities. 
C) use prior and sample information probabilities to calculate revised probabilities. 
D) use sample information to revise the sample information probabilities.

Question 9

Decision alternatives are structured so that several could occur simultaneously.

Accepted Answer

A) True 
 B)False

Question 10

Decision tree probabilities refer to

Accepted Answer

A) the probability of finding the optimal strategy 
B) the probability of the decision being made 
C) the probability of overlooked choices 
D) the probability of an uncertain event occurring 
A) the probability of finding the optimal strategy 
B) the probability of the decision being made 
C) the probability of overlooked choices 
D) the probability of an uncertain event occurring

Question 11

The expected value of an alternative can never be negative.

Accepted Answer

A) True 
 B)False

Question 12

Square nodes in a decision tree indicate that a decision must be made.

Accepted Answer

A) True 
 B)False

Question 13

The Super Cola Company must decide whether or not to introduce a new diet soft drink.Management feels that if it does introduce the diet soda it will yield a profit of $1 million if sales are around 100 million,a profit of $200,000 if sales are around 50 million,or it will lose $2 million if sales are only around 1 million bottles.If Super Cola does not market the new diet soda,it will suffer a loss of $400,000.
a.Construct a payoff table for this problem.
b.Construct a regret table for this problem.
c.Should Super Cola introduce the soda if the company: (1)is conservative; (2)is optimistic; (3)wants to minimize its maximum disappointment?
d.An internal marketing research study has found P(100 million in sales)= 1/3;
P(50 million in sales)= 1/2;P(1 million in sales)= 1/6.Should Super Cola introduce the new diet soda?
e.A consulting firm can perform a more thorough study for $275,000.Should management have this study performed?

Accepted Answer

a.
 @#IMG-DLM& b.
 @#IMG-DLM& c.(1)do no

Question 14

A payoff table is given as
   
a.What choice should be made by the optimistic decision maker?
b.What choice should be made by the conservative decision maker?
c.What decision should be made under minimax regret?
d.If the probabilities of d1,d2,and d3 are .2,.5,and .3,respectively,then what choice should be made under expected value?
e.What is the EVPI?

Accepted Answer

a.d₂ b.d₃ c.d₁ d.EV(d₁)=

Question 15

A decision tree

Accepted Answer

A) presents all decision alternatives first and follows them with all states of nature. 
B) presents all states of nature first and follows them with all decision alternatives. 
C) alternates the decision alternatives and states of nature. 
D) arranges decision alternatives and states of nature in their natural chronological order. 
A) presents all decision alternatives first and follows them with all states of nature. 
B) presents all states of nature first and follows them with all decision alternatives. 
C) alternates the decision alternatives and states of nature. 
D) arranges decision alternatives and states of nature in their natural chronological order.

Question 16

For a minimization problem,the conservative approach is often referred to as the

Accepted Answer

A) minimax approach 
B) maximin approach 
C) maximax approach 
D) minimin approach 
A) minimax approach 
B) maximin approach 
C) maximax approach 
D) minimin approach

Question 17

Lakewood Fashions must decide how many lots of assorted ski wear to order for its three stores.Information on pricing,sales,and inventory costs has led to the following payoff table,in thousands.
   
a.What decision should be made by the optimist?
b.What decision should be made by the conservative?
c.What decision should be made using minimax regret?

Accepted Answer

a.3 lots
b

Question 18

States of nature

Accepted Answer

A) can describe uncontrollable natural events such as floods or freezing temperatures. 
B) can be selected by the decision maker. 
C) cannot be enumerated by the decision maker. 
D) All of the alternatives are true. 
A) can describe uncontrollable natural events such as floods or freezing temperatures. 
B) can be selected by the decision maker. 
C) cannot be enumerated by the decision maker. 
D) All of the alternatives are true.

Question 19

The options from which a decision maker chooses a course of action are

Accepted Answer

A) called the decision alternatives. 
B) under the control of the decision maker. 
C) not the same as the states of nature. 
D) All of the alternatives are true. 
A) called the decision alternatives. 
B) under the control of the decision maker. 
C) not the same as the states of nature. 
D) All of the alternatives are true.

Question 20

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Accepted Answer

A) True 
 B)False

Making a good decision

After all probabilities and payoffs are placed on a decision tree,the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes.

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s₁ over which each of the decision alternatives has its largest expected value.

Fold back the decision tree and state what strategy should be followed.

To find the EVSI,

Decision alternatives are structured so that several could occur simultaneously.

Decision tree probabilities refer to

The expected value of an alternative can never be negative.

Square nodes in a decision tree indicate that a decision must be made.

A decision tree

For a minimization problem,the conservative approach is often referred to as the

States of nature

The options from which a decision maker chooses a course of action are

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Introduction

Introduction to Probability

Probability Distributions

Utility and Game Theory

Forecasting

Introduction to Linear Programming

Lp Sensitivity Analysis and Interpretation of Solution

Linear Programming Applications

Distribution and Network Problems

Integer Linear Programming

Advanced Optimization Application

Project Scheduling: Pertcpm

Inventory Models

Waiting Line Models

Simulation

Markov Processes

Filters

Exam 4: Decision Analysis

Making a good decision

After all probabilities and payoffs are placed on a decision tree,the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes.

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s1 over which each of the decision alternatives has its largest expected value.

Fold back the decision tree and state what strategy should be followed.

To find the EVSI,

Decision alternatives are structured so that several could occur simultaneously.

Decision tree probabilities refer to

The expected value of an alternative can never be negative.

Square nodes in a decision tree indicate that a decision must be made.

A decision tree

For a minimization problem,the conservative approach is often referred to as the

States of nature

The options from which a decision maker chooses a course of action are

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Introduction

Introduction to Probability

Probability Distributions

Utility and Game Theory

Forecasting

Introduction to Linear Programming

Lp Sensitivity Analysis and Interpretation of Solution

Linear Programming Applications

Distribution and Network Problems

Integer Linear Programming

Advanced Optimization Application

Project Scheduling: Pertcpm

Inventory Models

Waiting Line Models

Simulation

Markov Processes

Filters

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s₁ over which each of the decision alternatives has its largest expected value.