Exam 23: Work Measurement, Learning Curves, and Standards

A conservative or risk-averse approach to one-time decisions without event probabilities is ____.

Which of the following is best related to the expected value approach?

The expected value of perfect information represents the maximum amount a company should be willing to pay for any information about events, no matter how good it is.

The expected value criteria is a good tool if

Explain the Expected Value of Perfect Information EVPI) and how it helps a decision-maker.

Define the four major elements of a decision problem.

In what type of situation would the expected monetary value criterion be useful? In what type situation would it not be useful?

The decision criterion, for a one-time decision without event probabilities, that is neither aggressive nor conservative is

With some modification, the decision rules for one-time decisions without event probabilities can be applied to situations where the payoff is cost.

A major retail clothing store is considering whether to open a new store on the other side of town or wait one year and then open the store. In the meantime, they have paid $10,000 for a one year option on a building. If they open the store now it will cost $140,000 to refurbish it, but it will cost $160,000 if they wait one year. They expect sales to depend on the economy in the area at the time they open the store. If they go ahead now, there is a 50% chance the economy will go up, 30% it will stay the same, and 20% it will go down. They then expect the following returns: if the economy goes up $200,000; stays the same $160,000; and goes down ?$20,000. If they wait one year, they can either open the store then or not open the store and let the option expire. If the option expires, they will lose the $10,000. One year from now they expect there is a 40% chance the economy will go up, 30% stay the same, and 30% go down. The returns they expect to get would then be: if the economy goes up $180,000; stays the same $160,000; and goes down -$30,000. a. Using decision tree analysis, what is the expected value of opening the store now? b. Using decision tree analysis, what is the expected value of waiting one year to open the store? c. What should the company do and what is the expected value of that decision?

A regional fast?food restaurant is considering an expansion program. The major factor influencing the success of such a program is the future level of interest rates. It is estimated that there is a 20 percent chance that interest rates will increase by 2 percentage points, a 50 percent chance that they will remain the same, and a 30 percent chance that they will decrease by 2 percentage points. The alternatives they are considering and possible payoffs are shown in the following table: Rates Up Rates Rates Down 2 Percent Unchanged 2 Percent Build 50 new places -\ 200,000 \ 50,000 \ 150,000 Build 25 new places -\ 115,000 \ 26,000 \ 80,000 Do nothing -\ 70,000 0 \ 5,000 a. Using decision tree analysis, what is the expected value for building 50 new restaurants? b. Using decision tree analysis, what is the expected value for building 25 new restaurants? c. What is the action and corresponding EV for this overall decision tree problem?

Making decisions in an emergency room of a hospital is an example of a decision analysis situation.

The expected value concept weighs each payoff for an alternative in proportion to the likelihood that the payoff will occur.

Which of the following is not a similarity between a decision matrix and a decision tree?

____ represent a future outcome that can occur after a decision is made that are not under the control of the decision-maker.

Jumbo James sells hotdogs out of a cart for $3.00 each. His cost to purchase and prepare the hotdog is $1.15 each. He operates the small business with very few capital assets and has no place to store unsold hotdogs. For this reason, every evening he sells the unsold hotdogs to a local homeless shelter for $0.50 each. Jumbo James will choose one of the following options as a standard stocking plan: d₁ = 100; d₂ = 150; or d₃ = 200 hot dogs. On any weekday, the demand for hot dogs and the probability of selling them is estimated as follows: Demand Per Day Probability 100 0.50 200 0.30 300 0.20 a. Determine the expected value if Jumbo James stocks 200 hot dogs every day. b. Determine the expected value if Jumbo James decides to stock 150 hot dogs every day.

Managers don't often have the information necessary to find optimal solutions to business problems.

Elements common to decision-making in all models do not include

Describe how the following criteria are applied to a decision problem in which the objective is minimization. a.Maximax b.Maximin c.Minimax regrets

The expected value of a decision alternative cannot be negative.