Question 1

What is the difference between the expected payoff under perfect information and the maximum expected payoff under risk?

Accepted Answer

A) expected monetary value 
B) economic order quantity 
C) expected value of perfect information 
D) PERT 
E) expected monetary payoff 
A) expected monetary value 
B) economic order quantity 
C) expected value of perfect information 
D) PERT 
E) expected monetary payoff

Question 2

What decision criterion would be used by an optimistic decision maker solving a problem under conditions of uncertainty?

Accepted Answer

A) expected monetary value 
B) equally likely 
C) maximax 
D) maximin 
E) minimin 
A) expected monetary value 
B) equally likely 
C) maximax 
D) maximin 
E) minimin

Question 3

The EMV of a decision with three states of nature is $50.If the profit/value of A is 1/3 of B and B is 1/3 of C,determine the profit from A if all three states of nature are equally likely to occur.

Accepted Answer

The total payoff is simply the

Question 4

The campus bookstore sells stadium blankets embroidered with the university crest.The blankets must be purchased in bundles of one dozen each.Each blanket in the bundle costs $65,and will sell for $90.Blankets unsold by homecoming will be clearance priced at $20.The bookstore estimates that demand patterns will follow the table below.
a.Build the decision table.
b.What is the maximum expected monetary value?
c.How many bundles should be purchased?

Accepted Answer

(a)See the table below; (b)the

Question 5

________ is the expected payout or value of a variable that has different possible states of nature,each with an associated probability.

Accepted Answer

Expected m

Question 6

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells.The different mechanisms have three different setup costs (overheads)and variable costs and,therefore,the profit from the dolls is dependent on the volume of sales.The anticipated payoffs are as follows.
   a.What is the EMV of each decision alternative?
b.Which action should be selected?
c.What is the expected value with perfect information?
d.What is the expected value of perfect information?

Accepted Answer

(a)Wind-up = .25($325,000)+ .45($190,000

Question 7

A toy manufacturer makes stuffed kittens and puppies that have relatively lifelike motions.There are three different mechanisms which can be installed in these "pets." These toys will sell for the same price regardless of the mechanism installed,but each mechanism has its own variable cost and setup cost.Profit,therefore,is dependent upon the choice of mechanism and upon the level of demand.The manufacturer has in hand a forecast of demand that suggests a 0.2 probability of light demand,a 0.45 probability of moderate demand,and a probability of 0.35 of heavy demand.Payoffs for each mechanism-demand combination appear in the table below.
   Construct the appropriate decision tree to analyze this problem.Use standard symbols for the tree.Analyze the tree to select the optimal decision for the manufacturer.

Accepted Answer

@#IMG-DLM& The best

Question 8

A local business owner is a bit uncertain of the demand forecast,and he is timidly approaching the capacity decision for a business he is about to open.Here's how he describes the decisions that confront him over the next two years.
"First,I have to choose between building a large plant initially and building a small one that has room to expand.Or I could rent now and decide whether to build next year.That one,too,could be the large version or the small.If I build small,then after one year,I can review how good business was,and decide whether to expand.If I build large,there is no further option to enlarge."
Do not concern yourself with probabilities or payoff values.Simply draw the tree that illustrates the manager's decision alternatives and the chance events that go along with them.Use standard symbols for decision tree construction,and label all parts of your diagram carefully.To simplify,assume that business in the first year,and in the second,can be only "good" or "bad."

Accepted Answer

The answer of A local business owner is a bit...

Question 9

A retailer is deciding how many units of a certain product to stock.The historical probability distribution of sales for this product is 0 units,0.2; 1 unit,0.3; 2 units,0.4,and 3 units,0.1.The product costs $8 per unit and sells for $25 per unit.What is the conditional value for the decision alternative "Stock 3" and state of nature "Sell 1"?

Accepted Answer

A) 1.4 units 
B) $1 profit 
C) $25 profit 
D) $-8 profit 
E) $23.80 profit 
A) 1.4 units 
B) $1 profit 
C) $25 profit 
D) $-8 profit 
E) $23.80 profit

Question 10

A decision maker using the maximin criterion on the problem below would choose Alternative ________ because the maximum of the row minimums is ________.

Accepted Answer

A) A; 55 
B) B; 30 
C) C; 70 
D) D; 140 
E) D; 10 
A) A; 55 
B) B; 30 
C) C; 70 
D) D; 140 
E) D; 10

Question 11

What is the expected value with perfect information in the following decision table?

Accepted Answer

A) 50 
B) 200 
C) 260 
D) 300 
E) 350 
A) 50 
B) 200 
C) 260 
D) 300 
E) 350

Question 12

Describe the meaning of EVPI.

Accepted Answer

EVPI is defined as the expected value of

Question 13

The maximin criterion is pessimistic,while the maximax criterion is optimistic.

Accepted Answer

A) True 
 B)False

Question 14

The expected value of perfect information is the same as the expected value with perfect information.

Accepted Answer

A) True 
 B)False

Question 15

What is the expected value with perfect information of the following decision table?

Accepted Answer

A) 5,000 
B) 10,000 
C) 40,000 
D) 60,000 
E) 70,000 
A) 5,000 
B) 10,000 
C) 40,000 
D) 60,000 
E) 70,000

Question 16

________ is the criterion for decision making under uncertainty that assigns equal probability to each state of nature.

Accepted Answer

The answer of ________ is the criterion for decision making...

Question 17

A(n)________ is an occurrence or situation over which the decision maker has little or no control.

Accepted Answer

The answer of A(n)________ is an occurrence or situation over...

Question 18

The expected value with perfect information is:

Accepted Answer

A) the maximum EMV for a set of alternatives. 
B) the same as the expected value of perfect information. 
C) the difference between the payoff under perfect information and the payoff under risk. 
D) the expected return obtained when the decision maker knows which state of nature is going to occur before the decision is made. 
E) obtained using conditional probabilities. 
A) the maximum EMV for a set of alternatives. 
B) the same as the expected value of perfect information. 
C) the difference between the payoff under perfect information and the payoff under risk. 
D) the expected return obtained when the decision maker knows which state of nature is going to occur before the decision is made. 
E) obtained using conditional probabilities.

Question 19

What is the EMV for Option 1 in the following decision table?

Accepted Answer

A) 10,000 
B) 18,000 
C) 20,000 
D) 22,000 
E) 30,000 
A) 10,000 
B) 18,000 
C) 20,000 
D) 22,000 
E) 30,000

Question 20

Doing nothing would yield how much profit if favorable market conditions prevail according to the following profit decision table?

Accepted Answer

A) $5,000 
B) $20,000 
C) -$10,000 
D) $0 
E) $10,000 
A) $5,000 
B) $20,000 
C) -$10,000 
D) $0 
E) $10,000

Exam 22: Decision-Making Tools

What is the difference between the expected payoff under perfect information and the maximum expected payoff under risk?

What decision criterion would be used by an optimistic decision maker solving a problem under conditions of uncertainty?

The EMV of a decision with three states of nature is $50.If the profit/value of A is 1/3 of B and B is 1/3 of C,determine the profit from A if all three states of nature are equally likely to occur.

________ is the expected payout or value of a variable that has different possible states of nature,each with an associated probability.

A decision maker using the maximin criterion on the problem below would choose Alternative ________ because the maximum of the row minimums is ________.

What is the expected value with perfect information in the following decision table?

Describe the meaning of EVPI.

The maximin criterion is pessimistic,while the maximax criterion is optimistic.

The expected value of perfect information is the same as the expected value with perfect information.

What is the expected value with perfect information of the following decision table?

________ is the criterion for decision making under uncertainty that assigns equal probability to each state of nature.

A(n)________ is an occurrence or situation over which the decision maker has little or no control.

The expected value with perfect information is:

What is the EMV for Option 1 in the following decision table?

Doing nothing would yield how much profit if favorable market conditions prevail according to the following profit decision table?

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Process Strategy

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Human Resources, job Design, and Work Measurement

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A decision maker using the maximin criterion on the problem below would choose Alternative because the maximum of the row minimums is .