Question 1

A decision-maker using the maximax criterion on the problem below would choose Alternative __________ because the maximum of the row maximums is __________. $$ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | c | } 
\hline & 1 & 2 & 3 \
\hline \text { Alternative A } & 50 & 55 & 60 \
\hline \text { Alternative B } & 30 & 50 & 80 \
\hline \text { Alternative C } & 70 & 80 & 70 \
\hline \text { Alternative D } & - 100 & - 10 & 140 \
\hline
\end{array}$$

Accepted Answer

A)  A; 60 
B)  B; 80 
C)  C; 70 
D)  D; -100 
E)  D; 140

Question 2

What is the EMV for Option 2 in the following decision table?
$$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | } 
\hline \text { Alternatives } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } \
\hline \mathrm { p } & .4 & .6 \
\hline \text { Option 1 } & 10,000 & 30,000 \
\hline \text { Option 2 } & 5,000 & 45,000 \
\hline \text { Option 3 } & -4,000 & 60,000 \
\hline
\end{array}$$

Accepted Answer

A)  5,000 
B)  21,000 
C)  25,000 
D)  29,000 
E)  45,000

Question 3

Decision trees and decision tables can both solve problems requiring a single decision, but decision tables are the preferred method when a sequence of decisions is involved.

Accepted Answer

A) True 
 B)False

Question 4

The following decision tree has how many state of nature nodes

Accepted Answer

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

Question 5

Bratt's Bed and Breakfast, in a small historic New England town, must decide how to subdivide (remodel) the large old home that will become their inn. There are three alternatives: Option A would modernize all baths and combine rooms, leaving the inn with four suites, each suitable for two to four adults. Option B would modernize only the second floor; the results would be six suites, four for two to four adults, and two for two adults only. Option C (the status quo option) leaves all walls intact. In this case, there are eight rooms available, but only two are suitable for four adults, and four rooms will not have private baths. Below are the details of profit and demand patterns that will accompany each option. Which option has the highest expected value?
 Annual profit under various demand patterns
$\begin{array}{|l|c|c|c|c|}
\hline & \text { Capacity } & \mathrm{p} & \text { Average } & \mathrm{p} \
\hline \text { A (Modernize all) } & \$ 90,000 & .5 & \$ 25,000 & .5 \
\hline \text { B (Modernize } & & & & \
 \text {2 (nd) } & \$ 80,000 & .4 & \$ 70,000 & .6 \
\hline \mathrm{C} \text { (Status Quo) } & \$ 60,000 & .3 & \$ 55,000 & .7 \
\hline
\end{array}$

Accepted Answer

The answer of Bratt's Bed and Breakfast, in a small...

Question 6

What is the expected value of perfect information of the following decision table?
$$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | } 
\hline \text { Alternatives } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } \
\hline \mathrm { p } & .6 & .4 \
\hline \text { Option 1 } & 200 & 300 \
\hline \text { Option } 2 & 50 & 350 \
\hline
\end{array}$$

Accepted Answer

A)  0 
B)  20 
C)  50 
D)  150 
E)  200

Question 7

Doing nothing would yield how much profit if favorable market conditions prevail according to the following decision table?
$$\begin{array} { | l | l | l | } 
\hline
\text { Alternative } & \text { Favorable market } & \text { Unfavorable Market } \
\hline \text { Do Nothing } & \$ 20,000 & - \$ 10,000 \
\hline
\end{array}$$

Accepted Answer

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

Question 8

Expected monetary value is most appropriate for problem solving that takes place

Accepted Answer

A)  when conditions are average 
B)  when all states of nature are equally likely 
C)  when all alternatives are equally likely 
D)  under conditions of uncertainty 
E)  under conditions of risk

Question 9

A decision maker who uses the maximin criterion when solving a problem under conditions of uncertainty is

Accepted Answer

A)  an optimist 
B)  a pessimist 
C)  an economist 
D)  an optometrist 
E)  making a serious mistake; maximin is not appropriate for conditions of uncertainty

Question 10

The square symbol used in drawing a decision trees represents a __________ node.

Accepted Answer

The answer of The square symbol used in drawing a...

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A retailer is deciding how many 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. The largest conditional value (profit) in the entire payoff table for this scenario is

Accepted Answer

A)  $-24 profit 
B)  $-8 profit 
C)  $17 profit 
D)  $51 profit 
E)  $75 profit

Question 13

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?

Accepted Answer

A)  $50,000 
B)  $25,000 
C)  $28,333.33 
D)  $21,666.67 
E)  none of the above

Question 14

A square node on a decision tree infers that

Accepted Answer

A)  the node splits into various states of nature, of which only one will occur 
B)  there are several alternatives available 
C)  the manager must choose an alternative 
D)  both B and C 
E)  A, B, and C

Question 15

A do-it-yourself homeowner is installing a new toilet. While installing the toilet he must decide on what kind of connecting pipe he will install to the water supply. There are two available options, one that has a shut-off valve in case of a leak and a cheaper one without the shut-off valve. Suppose that the shut-off valve pipe costs an extra ten dollars and that the homeowner must buy one of the two.
a. Draw a decision tree for this scenario, labeling the cost of a leak as X and the chance of a leak as P.
b. If the chance of a leak causing household damage is 1%, at what $ amount of household damage is the owner neutral on which pipe to buy?
c. If the cost of a leak would be $10,000 what is the maximum % chance to leak at which the homeowner would prefer to buy the cheaper pipe?
d. If the cost of a leak is $1,000 and the chance to flood .1% which pipe should the homeowner buy?

Accepted Answer

The answer of A do-it-yourself homeowner is installing a new...

Question 16

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

Accepted Answer

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

Question 17

The last step in the analytic decision process clearly defines the problem and the factors that influence it.

Accepted Answer

A) True 
 B)False

Question 18

A decision-maker using the maximin criterion on the problem below would choose Alternative __________ because the maximum of the row minimums is __________. $$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { States of Nature } } \
\begin{array} { | l | c | c | c | } 
\hline & \underline { 1 } & \underline { 2 } & \underline { 3 } \
\hline \text { Alternative A } & 50 & 55 & 60 \
\hline \text { Alternative B } & 30 & 50 & 80 \
\hline \text { Alternative C } & 70 & 80 & 70 \
\hline \text { Alternative D } & - 100 & - 10 & 140 \
\hline
\end{array}$$

Accepted Answer

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

Question 19

How is the expected value of perfect information (EVPI) found?

Accepted Answer

The answer of How is the expected value of perfect...

Question 20

In terms of decision theory, an occurrence or situation over which the decision maker has no control is called a(n)

Accepted Answer

A)  decision under uncertainty 
B)  decision tree 
C)  state of nature 
D)  alternative 
E)  none of the above

Exam 21: Decision-Making Tools

Decision trees and decision tables can both solve problems requiring a single decision, but decision tables are the preferred method when a sequence of decisions is involved.

The following decision tree has how many state of nature nodes

Expected monetary value is most appropriate for problem solving that takes place

A decision maker who uses the maximin criterion when solving a problem under conditions of uncertainty is

The square symbol used in drawing a decision trees represents a __________ node.

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

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?

A square node on a decision tree infers that

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

The last step in the analytic decision process clearly defines the problem and the factors that influence it.

How is the expected value of perfect information (EVPI) found?

In terms of decision theory, an occurrence or situation over which the decision maker has no control is called a(n)