Exam 22: Decision Modeling

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

Steve Gentry,the operations manager of Baja Fabricators,wants to purchase a new profiling machine (it cuts compound angles on the ends of large structural pipes used in the fabrication yard).However,because the price of crude oil is depressed,the market for such equipment is down.Steve believes that the market will improve in the near future and that the company should expand its capacity.The table below displays the three equipment options he is currently considering,and the profit he expects each one to yield over a two-year period.The consensus forecast at Baja is that there is about a 30% probability that the market will pick up "soon" (within 3 to 6 months)and a 70% probability that the improvement will come "later" (in 9 to 12 months,perhaps longer). a.Calculate the expected monetary value of each decision alternative. b.Which equipment option should Steve take?

The construction manager for Acme Construction,Inc.must decide whether to build single family homes,apartments,or condominiums.This is not a product-mix problem,but an all-or-nothing decision.He will hire workers and rent equipment appropriate for one action only.He estimates annual profits (in thousands of dollars)will vary with population trends as follows: a.If he uses the maximin criterion,which type of dwellings will he choose to build? Show your supporting calculations. b.If he uses the equally likely criterion,which kind of dwellings will he choose to build? Show your supporting calculations. c.If the construction manager were an optimist,what criterion would he choose? What would be the choice of dwelling for that criterion? Show your supporting calculations.

In the context of decision-making,define a state of nature.

In the context of decision making,define an alternative.

There are three equally likely states of nature (High,Medium,and Low demand).If the large factory will post profits of $50,000,$25,000,and - $10,000 under these states of nature,respectively,what is the EMV of the factory?

The first step,and a key element,in the decision-making process is to:

If a decision maker is a pessimist,what decision-making criterion is appropriate? Why?

The square symbol used in drawing a decision trees represents a(n)________ node.

Identify and describe three methods used for decision making under conditions of uncertainty.

If a decision maker can assign probabilities of occurrences to the states of nature,then the decision-making environment is Decision Making under Uncertainty.

An operations manager's staff has compiled the information below for four manufacturing alternatives (A,B,C,and D)that vary by production technology and the capacity of the machinery.All choices enable the same level of total production and have the same lifetime.The four states of nature represent four levels of consumer acceptance of the firm's products.Values in the table are net present value of future profits in millions of dollars. a.Assuming a maximax strategy,which alternative would be chosen? b.If maximin were used,which would be chosen? c.If the states of nature were equally likely,which alternative should be chosen?

A branch of a decision tree that is less favorable than other available options may be ________.

What is a tabular presentation that shows the outcome for each decision alternative under the various possible states of nature called?

A square node on a decision tree infers that:

Define expected monetary value (EMV).

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 largest conditional value (profit)in the entire payoff table for this scenario?

What is the EMV for Option 2 in the following decision table?

A state of nature is an occurrence or a situation over which the decision maker has little or no control.

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?