Deck 5: B: Strategic Capacity Planning

Question 1

A decision tree is:

A) an algebraic representation of alternatives.
B) a behavioural representation of alternatives.
C) a matrix representation of alternatives.
D) a graphical representation of alternatives.
E) a horticultural representation of alternatives.

Answer 1

D

Question 2

An advantage of decision trees compared to payoff tables is that they permit us to analyze situations involving sequential or multistage decisions.

Answer 2

True

Question 3

In a decision tree,square nodes represent chance events,and circular nodes denote decision points.

Answer 3

False

Question 4

The expected monetary value approach is most appropriate when the decision-maker is risk-neutral.

Question 5

Influence diagrams represent complex situations with many random variables,but only one decision variable.

Question 6

Graphical sensitivity analysis is limited to cases with no more than two alternatives.

Question 7

Graphical sensitivity analysis is used when the payoffs and probabilities of decision alternatives are uncertain.

Question 8

A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called:

A) a payoff table.
B) a feasible region.
C) an isoquant table.
D) a decision tree.
E) a payback period matrix.

Question 9

Expected monetary value gives the actual payoff one can expect in a given situation involving risk.

Question 10

In decision theory,states of nature refer to a set of possible values for a random variable.

Question 11

Decision trees are useful when there is more than one decision variable.

Question 12

Typically the choice to "do nothing" based on a preference to stick with the status quo is not considered in the list of possible alternatives for a decision.

Question 13

In an influence diagram,the circles show chance events.

Question 14

In order to use the expected value approach,one needs to determine the probabilities of future payoffs.

Question 15

Decision trees are analyzed from left to right.

Question 16

The EVPI indicates an upper limit on the amount a decision-maker should be willing to spend to obtain perfect information.

Question 17

Expected monetary value gives the long-run average payoff if a large number of identical decisions could be made.

Question 18

The expected value approach is used for major,non-recurring decisions involving several decision variables.

Question 19

Influence diagrams contain more detailed information than decision trees.

Question 20

The probabilities assigned to each state of nature are taken from the appropriate probability distribution tables.

Question 21

The operations manager for a well-drilling company must recommend whether to build a new facility,expand his existing one,or do nothing.He estimates that long-run profits (in $000)will vary with the amount of precipitation (rainfall)as follows: If he feels the chances of low,normal,and high precipitation are 30%,20%,and 50%,respectively,what is his expected value of perfect information?

A) $140,000
B) $170,000
C) $285,000
D) $305,000
E) $475,000

Question 22

The local operations manager for the Canada Revenue Agency decides whether to hire one,two,or three temporary tax examiners for the upcoming tax season.She estimates that net revenues (in thousands of dollars)will vary with how well taxpayers comply with the new tax code just passed by Parliament,as follows: If she feels the chances of low,medium,and high compliance are 20%,30%,and 50%,respectively,what is her expected value of perfect information?

A) $16,000
B) $26,000
C) $46,000
D) $48,000
E) $50,000

Question 23

The difference between expected payoff under certainty and expected payoff under risk is the:

A) expected monetary value.
B) expected value of perfect information.
C) expected net present value.
D) expected rate of return.
E) none of the above.

Question 24

Which of the following is not true about influence diagrams?

A) They represent complex situations with many variables.
B) They show the alternatives at the decision nodes.
C) Chance events are shown in circles.
D) They are more concise than decision trees.
E) All of these are true.

Question 25

Testing how a problem solution reacts to changes in one or more of the model parameters in a decision problem is called:

A) analysis of trade-offs.
B) sensitivity analysis.
C) priority recognition.
D) analysis of variance.
E) decision analysis.

Question 26

A sensitivity analysis graph:

A) provides the exact values of the range of probability for the optimal alternative.
B) is useful for a maximum of three alternatives.
C) is useful when the probabilities of payoffs are known.
D) provides a visual indication of the range of probability for the best alternative.
E) All of the choices are correct.

Question 27

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30% chance that demand will be high,what is her expected value of perfect information?

A) $1,600
B) $1,100
C) $1,000
D) $900
E) $500

Question 28

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: For what range of probability that demand will be high,will she decide to lease the large facility?

A) 0 - .25
B) 0 - .33
C) .25 - .5
D) .33 - 1
E) .5 - 1

Question 29

The local operations manager for the Canada Revenue Agency must decide whether to hire one,two,or three temporary tax examiners for the upcoming tax season.She estimates that net revenues (in thousands of dollars)will vary with how well taxpayers comply with the new tax code just passed by Parliament,as follows: If she feels the chances of low,medium,and high compliance are 20%,30%,and 50%,respectively,what are the expected net revenues for the number of assistants she will decide to hire?

A) $26,000
B) $46,000
C) $48,000
D) $50,000
E) $76,000

Question 30

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30% chance that demand will be high,what are the expected monthly profits for the outlet she will decide to lease?

A) $1,600
B) $1,100
C) $1,000
D) $900
E) $500

Question 31

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: If she feels that there is a 60% chance that the new cable network will be successful,what is her expected cost (per thousand "hits")under certainty?

A) $3.40
B) $14.40
C) $8.00
D) $9.00
E) $10.00

Question 32

A former politician,who is now the owner of an Ottawa consulting firm,is trying to decide whether to hire one,two,or three consultants.He estimates that profits next year (in thousands of dollars)will vary with demand for his consulting services as follows: If he feels the chances of low,medium,and high demand are 50%,20%,and 30%,respectively,what are the expected annual profits for the number of consultants he will decide to hire?

A) $54,000
B) $55,000
C) $70,000
D) $80,000
E) $135,000

Question 33

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: If she feels that there is a 60% chance that the new cable network will be successful,what is her expected cost (per thousand "hits")for the strategy she will be selecting?

A) $3.40
B) $4.60
C) $8.00
D) $9.00
E) $10.00

Question 34

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: For what range of probability that demand will be high,will she decide to lease the small facility?

A) 0 - .25
B) 0 - .33
C) .25 - .5
D) .33 - 1
E) .5 - 1

Question 35

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows:
For what range of probability that demand will be high,will she decide to lease the medium facility?

A) 0 - .25
B) 0 - .33
C) .25 - .5
D) .33 - 1
E) .5 - 1

Question 36

A former politician,who is now the owner of an Ottawa consulting firm,is trying to decide whether to hire one,two,or three consultants.He estimates that profits next year (in thousands of dollars)will vary with demand for his consulting services as follows: If he feels the chances of low,medium,and high demand are 50%,20%,and 30%,respectively,what is his expected value of perfect information?

A) $54,000
B) $65,000
C) $70,000
D) $80,000
E) $135,000

Question 37

The construction manager for Acme Construction,Inc.must decide whether to build single-family homes,apartments,or condominiums.He estimates annual profits (in $000)will vary with the population trend as follows: If he feels the chances of declining,stable,and growing population trends are 40%,50%,and 10%,respectively,which kind of houses will he decide to build?

A) Single family
B) Apartments
C) Condos
D) Either single family or apartments
E) Either apartments or condos

Question 38

The construction manager for Acme Construction,Inc.must decide whether to build single-family homes,apartments,or condominiums.He estimates annual profits (in $000)will vary with the population trend as follows: If he feels the chances of declining,stable,and growing population trends are 40%,50%,and 10%,respectively,what is his expected value of perfect information?

A) $187,000
B) $132,000
C) $123,000
D) $65,000
E) $55,000

Question 39

The operations manager for a well-drilling company must recommend whether to build a new facility,expand his existing one,or do nothing.He estimates that long-run profits (in $000)will vary with the amount of precipitation (rainfall)as follows: If he feels the chances of low,normal,and high precipitation are 30%,20%,and 50%,respectively,what are expected long-run profits for the alternative he will select?

A) $140,000
B) $170,000
C) $285,000
D) $305,000
E) $475,000

Question 40

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30% chance that demand will be high,what is her expected payoff?

A) $1,600
B) $1,100
C) $1,000
D) $900
E) $500

Question 41

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book,they have a 50 percent chance of placing it with a major publisher,and it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80 percent chance of placing it with a smaller publisher,with ultimate sales of 30,000 copies.On the other hand,if they write a statistics book,they feel they have a 40 percent chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50 percent chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.What is the expected value for the decision alternative to write the economics book?

A) 50,000 copies
B) 40,000 copies
C) 32,000 copies
D) 30,500 copies
E) 10,500 copies

Question 42

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What would be the total payoff if the heart lab were funded in both the first and second years?

A) $100,000
B) $60,000
C) $50,000
D) $40,000
E) $20,000

Question 43

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the print media strategy?

A) 0 - .4
B) 0 - .55
C) .4 - .7
D) .55 - 1
E) .7 - 1

Question 44

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.)She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the expected value for the optimum decision alternative?

A) $15,000,000
B) $9,060,000
C) $8,400,000
D) $7,200,000
E) $6,000,000

Question 45

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the expected value for the decision alternative to select the heart lab?

A) $100,000
B) $60,000
C) $50,000
D) $40,000
E) $20,000

Question 46

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.)She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the expected value of selecting script #2?

A) $15,000,000
B) $9,060,000
C) $8,400,000
D) $7,200,000
E) $6,000,000

Question 47

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: If she feels that there is a 60% chance that the new cable network will be successful,what is her expected value (per thousand "hits")of perfect information?

A) $4.40
B) $4.60
C) $8.00
D) $9.00
E) $10.00

Question 48

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.)She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the probability that script #1 will be a success,but its sequel will not?

A) .8
B) .7
C) .56
D) .2
E) .14

Question 49

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.)She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the expected value of selecting script #1?

A) $15,000,000
B) $9,060,000
C) $8,400,000
D) $7,200,000
E) $6,000,000

Question 50

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book,they have a 50 percent chance of placing it with a major publisher,and it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80 percent chance of placing it with a smaller publisher,with ultimate sales of 30,000 copies.On the other hand,if they write a statistics book,they feel they have a 40 percent chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50 percent chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.What is the expected value for the decision alternative to write the statistics book?

A) 50,000 copies
B) 40,000 copies
C) 32,000 copies
D) 30,500 copies
E) 10,500 copies

Question 51

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the expected value for the decision alternative to select the cancer lab?

A) $100,000
B) $60,000
C) $50,000
D) $40,000
E) $20,000

Question 52

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the television media strategy?

A) 0 - .4
B) 0 - .55
C) .4 - .7
D) .55 - 1
E) .7 - 1

Question 53

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book,they have a 50 percent chance of placing it with a major publisher,and it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80 percent chance of placing it with a smaller publisher,with ultimate sales of 30,000 copies.On the other hand,if they write a statistics book,they feel they have a 40 percent chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50 percent chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.What is the probability that the economics book would wind up being placed with a smaller publisher?

A) .8
B) .5
C) .4
D) .2
E) .1

Question 54

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.)She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What would be the total payoff if script #1 was a success,but its sequel was not?

A) $15,000,000
B) $10,000,000
C) $9,000,000
D) $5,000,000
E) $-1,000,000

Question 55

A manager has developed a payoff table that indicates the profits associated with a set of alternatives under two possible states of nature.Answer the following questions.
(i)Determine the expected value of perfect information if P(S2)= .40.
(ii)Determine the range of P(S2)for which each alternative would be optimal.

Question 56

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book,they have a 50 percent chance of placing it with a major publisher,and it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80 percent chance of placing it with a smaller publisher,with ultimate sales of 30,000 copies.On the other hand,if they write a statistics book,they feel they have a 40 percent chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50 percent chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.What is the probability that the statistics book would wind up being placed with a smaller publisher?

A) .6
B) .5
C) .4
D) .3
E) 0

Question 57

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the probability that the heart lab will be funded in both the first and second years?

A) .4
B) .3
C) .2
D) .1
E) 0

Question 58

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book,they have a 50 percent chance of placing it with a major publisher,and it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80 percent chance of placing it with a smaller publisher,with ultimate sales of 30,000 copies.On the other hand,if they write a statistics book,they feel they have a 40 percent chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50 percent chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.What is the expected value for the optimum decision alternative?

A) 50,000 copies
B) 40,000 copies
C) 32,000 copies
D) 30,500 copies
E) 10,500 copies

Question 59

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the mixed media strategy?

A) 0 - .4
B) 0 - .55
C) .4 - .7
D) .55 - 1
E) .7 - 1

Question 60

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the expected value for the optimum decision alternative?

A) $100,000
B) $60,000
C) $50,000
D) $40,000
E) $20,000

Question 61

A manager is quite concerned about the recent deterioration of a section of the roof on a building that houses her firm's computer operations. According to her assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis: I, which has a probability of occurrence of .5; II, which has a probability of .3; and III, which has a probability of .2. If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000. If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C.
(i) Draw a decision tree for this problem.
(ii) Using expected monetary value, which alternative should be chosen?

Question 62

Given the payoff matrix below,answer the following questions:
(a)If somehow you find out for certain that state of nature #4 is going to occur,which alternative will you select?
(b)If you feel that P(#1)= .4,P(#2)= .3,P(#3)= .2,and P(#4)= .1,
(i)What is your expected payoff under certainty?
(ii)Which alternative has the highest expected monetary value?
(iii)What is your expected value of perfect information?

Question 63

A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A,$30,000 for B,$45,000 for C,and $60,000 for D if state of nature 1 occurs; and $60,000 for A,$80,000 for B,$90,000 for C,and $35,000 for D if state of nature 2 occurs.
(i)If P(State of Nature 1)is .40,what alternative has the highest expected monetary value?
(ii)Determine the range of P(S2)for which each alternative would be optimal.

Question 64

61A manager's staff has compiled the information below which pertains to four capacity alternatives. Values in the matrix are present value in thousands of dollars.
If states of nature are equally likely and an expected value criterion of maximization is used, which alternative would be chosen?