Deck 19: Decision Analysis

Question 1

In a decision analysis problem, variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called decision alternatives.

Answer 1

True

Question 2

In a decision-making under risk scenario, the expected monetary value of a decision alternative is the weighted average (using the probability of each state of nature as the weight)of the payoffs to the decision alternative in each state of the nature.

Answer 2

True

Question 3

In decision-making under risk, the expected monetary payoff of perfect information is the weighted average of the best payoff for each state of nature (using the probability of the state of nature as the weight).

Answer 3

True

Question 4

In a decision-making under uncertainty scenario, the best decision alternative based on the strategy of minmax regret will always have zero regret.

Question 5

The value of perfect information is the difference between the monetary payoff with perfect information and the expected monetary payoff with no information.

Question 6

In a decision analysis problem, variables (such as general macroeconomic conditions)which are not under the decision maker's control are called prior probabilities.

Question 7

The expected value of sample information is the ratio of the expected monetary value with information to the expected monetary value without information.

Question 8

In a decision-making under uncertainty scenario, the decision maker attempts to develop a strategy based on payoffs since virtually no information is available about which state of nature will occur.

Question 9

The concept of utility can be helpful to the apply decision analysis techniques to of situations which do not lend themselves to expected monetary value analysis.

Question 10

In a decision analysis problem, variables (such as benefits or rewards that result from investments in common stocks or corporate bonds and from a new product launch)which result from selecting a particular decision alternative are called posterior probabilities.

Question 11

In a decision-making scenario, if it is not known which of the states of nature will occur but the probabilities of occurrence of the states are known the scenario is called decision-making under risk.

Question 12

A risk-taker decision maker will bail out of risky scenario only if the compensation to bail out is more than the expected monetary payoff from the risky scenario.

Question 13

In decision-making under risk, the expected monetary value without information is the largest of the expected monetary values for the various decision alternatives.

Question 14

In a decision-making scenario, if the decision maker knows which state of nature will occur, the scenario is called decision-making under certainty.

Question 15

In a decision-making under uncertainty scenario using the strategy of minimax regret, all the entries in the opportunity loss table must be zero or positive.

Question 16

In a decision-making under risk scenario, the expected monetary value of a decision alternative is the arithmetic average of the payoffs to the decision alternative in each state of the nature.

Question 17

A risk-avoider decision maker will bail out of a risky scenario only if the compensation to bail out is more than the expected monetary payoff from the risky scenario.

Question 18

In a decision-making under uncertainty scenario, the decision maker chooses the decision alternative that has the minimum expected (i.e., probability-weighted)payoff among all the available alternatives.

Question 19

The expected monetary payoff of perfect information is the value of perfect information.

Question 20

In a decision-making scenario, if it is not known which of the states of nature will occur and further if the probabilities of occurrence of the states are also unknown, the scenario is called decision-making under double risk.

Question 21

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.In this situation, the profits of each competitor would be considered the ____________.

A)payoffs
B)decisions under certainty
C)decision alternatives
D)states of nature
E)options

Question 22

The expected value of sample information is the difference between the expected monetary value with information to the expected monetary value without information.

Question 23

In decision-making under uncertainty, an optimistic approach is the __________.

A)maximin criterion
B)maximax criterion
C)Hurwicz criterion
D)minimax regret strategy
E)maximin regret strategy

Question 24

If management is making a decision under certainty, the certainty is related to the __________ , making the final decision ____________.

A)payoff amounts; unimportant
B)states of nature; almost trivial
C)decision alternatives; depending on the state of nature
D)states of nature; important
E)payoff amounts: almost trivial

Question 25

Dianna Ivy is evaluating a plan to expand the product ion facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision.Below are her estimates of payoffs from various expansion plans under different prices of coal.If Diana knows the price of coal in the future will be the same as it is today, what expansion plan should she select? $$\begin{array} { | l | c | c | c | } \hline \text { PAYOFFE (\$riil) } & \text { Lower } & \text { \$arre } & \text { Higher } \\\hline \text { Larpe exparisior } & - \$ 500 & - \$ 100 & \$ 1,000 \\\hline \text { Medilrl exparsion } & - \$ 300 & \$ 150 & \$ 800 \\\hline \text { Brrall exparisior } & - \$ 50 & \$ 100 & \$ 400 \\\hline \text { No exparisior } & \$ 0 & \$ 75 & \$ 300 \\\hline\end{array}$$

A)No expansion
B)Small expansion
C)Medium expansion
D)Cannot determine from information
E)Large expansion

Question 26

If there is a 70% chance that the economy will grow and a 30% chance that it will not, then an investor might expect to make $90 on an investment or $25 on that same investment, respectively for the state of the economy.In this situation, their expected return would be $70.50.

Question 27

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.In this situation, the levels of future demand in the market would be considered the ____________.

A)payoffs
B)decisions under certainty
C)decision alternatives
D)states of nature
E)profits

Question 28

When deciding whether to purchase sample information, the revised probabilities due to that information can be incorporated through the application of Bayes' rule.

Question 29

In decision tables, what is shown along the top of the table as the column headings?

A)states of nature
B)decisions under certainty
C)profits
D)decision alternatives
E)payoffs

Question 30

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.Estimates of the profits for each competitor that could be purchased are estimated in the table below based on demand.If the CEO is unsure about future demand, which competitor should the company purchase? $$\begin{array} { | l | c | c | c | c | } \hline \text { PAYOFFS (\$mil) } & \text { Biprificarit decrease } & \text { Small decrease } & \text { Bmall increase } & \text { Siprificarit increase } \\\hline \text { Competitor A } & \$ 50 & \$ 100 & \$ 270 & \$ 1,450 \\\hline \text { Competitor B } & \$ 25 & \$ 75 & \$ 350 & \$ 1,330 \\\hline \text { Competitor C } & \$ 15 & \$ 80 & \$ 300 & \$ 1,700 \\\hline \text { Competitor D } & \$ 55 & \$ 90 & \$ 33 & \$ 1,500 \\\hline\end{array}$$

A)Competitor A
B)Competitor B
C)Cannot determine due to uncertainty
D)Competitor C
E)Competitor D

Question 31

Dianna Ivy is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision.Below are her estimates of payoffs from various expansion plans under different prices of coal.If Diana knows the price of coal in the future will be higher, what expansion plan should she select? $$\begin{array} { | l | c | c | c | } \hline \text { PAYOFFE (\$riil) } & \text { Lower } & \text { \$arre } & \text { Higher } \\\hline \text { Larpe exparisior } & - \$ 500 & - \$ 100 & \$ 1,000 \\\hline \text { Medimer exparision } & - \$ 300 & \$ 150 & \$ 800 \\\hline \text { Brrall exparisior } & - \$ 50 & \$ 100 & \$ 400 \\\hline \text { No exparisior } & \$ 0 & \$ 75 & \$ 300 \\\hline\end{array}$$

A)No expansion
B)Small expansion
C)Medium expansion
D)Cannot determine from information
E)Large expansion

Question 32

If there is a 60% chance that the economy will grow and a 40% chance that it will not, then an investor might expect to make $75 on an investment or -$10 on that same investment, respectively for the state of the economy.In this situation, their expected return would be $49.

Question 33

In decision tables, what is shown along the left side of the table as the row headings?

A)states of nature
B)decisions under certainty
C)profits
D)decision alternatives
E)payoffs

Question 34

Dianna Ivy is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision, but she cannot control it.For her decision, the different prices of coal represent the _____________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 35

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.Estimates of the profits for each competitor that could be purchased are estimated in the table below based on demand.If the CEO knows that demand will significantly decrease, which competitor should the company purchase? $$\begin{array} { | l | c | c | c | c | } \hline \text { PAYOFFS (\$mil) } & \text { Biprificarit decrease } & \text { Small decrease } & \text { Bmall increase } & \text { Siprificarit increase } \\\hline \text { Competitor A } & \$ 50 & \$ 100 & \$ 270 & \$ 1,450 \\\hline \text { Competitor B } & \$ 25 & \$ 75 & \$ 350 & \$ 1,330 \\\hline \text { Competitor C } & \$ 15 & \$ 80 & \$ 300 & \$ 1,700 \\\hline \text { Competitor D } & \$ 55 & \$ 90 & \$ 33 & \$ 1,500 \\\hline\end{array}$$

A)Competitor A
B)Competitor B
C)Cannot determine due to uncertainty
D)Competitor C
E)Competitor D

Question 36

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.Estimates of the profits for each competitor that could be purchased are estimated in the table below based on demand.If the CEO knows that demand will experience a small increase, which competitor should the company purchase? $$\begin{array} { | l | c | c | c | c | } \hline \text { PAYOFFS (\$mil) } & \text { Biprificarit decrease } & \text { Small decrease } & \text { Bmall increase } & \text { Siprificarit increase } \\\hline \text { Competitor A } & \$ 50 & \$ 100 & \$ 270 & \$ 1,450 \\\hline \text { Competitor B } & \$ 25 & \$ 75 & \$ 350 & \$ 1,330 \\\hline \text { Competitor C } & \$ 15 & \$ 80 & \$ 300 & \$ 1,700 \\\hline \text { Competitor D } & \$ 55 & \$ 90 & \$ 33 & \$ 1,500 \\\hline\end{array}$$

A)Competitor A
B)Competitor B
C)Cannot determine due to uncertainty
D)Competitor C
E)Competitor D

Question 37

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.The decision of which competitor to choose is a ____________ since the CEO __________.

A)payoff; will be tracking the profit from that decision
B)certainty; has control over that decision
C)state of nature; has no control over that decision
D)decision under uncertainty; has not decided
E)decision alternative; has no control over that decision

Question 38

In a decision analysis problem, variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called _________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 39

Dianna Ivy is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision, but she cannot control it.She is able to estimate how much the company would make under various prices of coal.Her estimates would represent the ___________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 40

Dianna Ivy is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision.She is able to estimate how much the company would make under various prices of coal.If Dianna is making her decision under certainty, then she knows the ___________.

A)profit possible under various prices of coal
B)whether the company will expand its production facilities
C)future price of coal
D)what decisions will be made at each point
E)future state of the economy

Question 41

In decision-making under uncertainty, a pessimistic approach is the __________.

A)maximin criterion
B)maximax criterion
C)Hurwicz criterion
D)minimax regret strategy
E)maximin regret strategy

Question 42

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$

If Trey uses the Hurwicz criterion with alpha = 0.1, the appropriate alternative would be: _____________.

A)Lease New Equipment
B)Purchase New Equipment
C)Add Third Shift
D)Do Nothing
E)Do everything

Question 43

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$

The opportunity loss for the combination "Purchase New Equipment" and "Low" is ____.

A)0.5
B)1.5
C)2.5
D)3.0
E)3.5

Question 44

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil his net loss will be $50,000, but if he drills a well and strikes oil his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.The probability of the state of nature "oil in the tract" is unknown.If Dan is a pessimist, he would choose the ____________.

A)maximin criterion
B)maximax criterion
C)Hurwicz criterion
D)minimax regret strategy
E)maximin regret strategy

Question 45

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$

The opportunity loss for the combination "Purchase New Equipment" and "High" is ___.

A)0.0
B)0.5
C)2.5
D)3.0
E)3.5

Question 46

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil, his net loss will be $50,000, but if he drills a well and strikes oil, his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.For Dan's decision problem, the variable "drill the well" is one of the ___________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 47

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil, his net loss will be $50,000, but if he drills a well and strikes oil, his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.For Dan's decision problem, the variable "net loss of $50,000" is one of the ___________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 48

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$
Using the maximin criterion, the appropriate choice would be __________.

A)d₁
B)d₂
C)d₃
D)d₄
E)d₅

Question 49

In decision-making under uncertainty, the approach that considers only the best and the worst payoffs for each decision alternative is the __________.

A)maximin criterion
B)maximax criterion
C)Hurwicz criterion
D)minimax regret strategy
E)maximin regret strategy

Question 50

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil, his net loss will be $50,000, but if he drills a well and strikes oil, his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.The probability of the state of nature "oil in the tract" is unknown.If Dan is an optimist, he would choose the _____________.

A)maximin criterion
B)maximax criterion
C)Hurwicz criterion
D)minimax regret strategy
E)maximin regret strategy

Question 51

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the maximax criterion, the appropriate choice would be ________.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question 52

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$
Using the Hurwicz criterion with alpha = 0.1, the appropriate choice would be ________.

A)d₁
B)d₂
C)d₃
D)d₄
E)d₅

Question 53

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$
The opportunity loss for the combination "S₃" and "d₁" is ________.

A)9
B)5
C)3
D)0
E)-1

Question 54

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$ Using the maximax criterion, the appropriate choice would be __________.

A)d₁
B)d₂
C)d₃
D)d₄
E)d₅

Question 55

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$
Using the Hurwicz criterion with alpha = 0.2, the appropriate choice would be ________.

A)d₁
B)d₂
C)d₃
D)d₄
E)d₅

Question 56

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$

If Trey uses the Hurwicz criterion with alpha = 0.4, the appropriate alternative would be: _____________.

A)Lease New Equipment
B)Purchase New Equipment
C)Add Third Shift
D)Do Nothing
E)Do everything

Question 57

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$
If Trey uses the maximax criterion, the appropriate alternative would be: _____________.

A)Lease New Equipment
B)Purchase New Equipment
C)Add Third Shift
D)Do Nothing
E)Do everything

Question 58

Consider the following decision table with rewards in $ millions. $\begin{array}{r}\text { State of Nature }\\\begin{array}{|c|c|c|c|}\hline \text { Decision Alternatives } & S_{1} & S_{2} & S_{3} \\\hline d_{1} & -1 & 2 & 8 \\\hline d_{2} & -3 & 7 & 5 \\\hline d_{3} & -0.5 & 0.75 & 1 \\\hline d_{4} & 0 & 0 & 0 \\\hline d_{5} & -1 & -1 & -1\\\hline\end{array}\end{array}$
The opportunity loss for the combination "S₂" and "d₁" is ________.

A)9
B)5
C)3
D)0
E)-1

Question 59

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. $\begin{array}{r}\text { Market Demands }\\ \begin{array}{|c|c|c|c|}\hline \text { Alternative } & \text { Low } & \text { Medium } & \text { High } \\\hline \text { Lease New Equipment } & -0.5 & 2 & 4 \\\hline \text { Purchase New Equipment } & -3 & 0.5 & 6 \\\hline \text { Add Third Shift } & 0.5 & 0.75 & 1 \\\hline \text { Do Nothing } & 0 & 0 & 0 \\\hline \end{array}\end{array}$
If Trey uses the maximin criterion, the appropriate alternative would be: _____________.

A)Lease New Equipment
B)Purchase New Equipment
C)Add Third Shift
D)Do Nothing
E)Do everything

Question 60

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil his net loss will be $50,000, but if he drills a well and strikes oil his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.For Dan's decision problem, the variable "oil in the tract" is one of the ___________.

A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question 61

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the Hurwicz criterion with alpha = 0.1, the appropriate choice is ______.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question 62

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$$\begin{array}{|c|c|c|c|} \hline \text { Market } & \text { Low (.3) } & \text { Medium (.4) } & \text { High (.3) } \\\hline \text { Northeast Only } & -0.7 & 0 & 1 \\\hline \text { Southeast Only } & -0.2 & 0.2 & 0.8 \\\hline \text { National } & -1.5 & -0.2 & 2 \\\hline \text { None (don't introduce the new package) } & 0 & 0 & 0\\\hline \end{array}$

The expected value of perfect information is ________.

A)$420,000
B)$570,000
C)$660,000
D)$720,000
E)$890,000

Question 63

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$$\begin{array}{|c|c|c|c|} \hline \text { Market } & \text { Low (.3) } & \text { Medium (.4) } & \text { High (.3) } \\\hline \text { Northeast Only } & -0.7 & 0 & 1 \\\hline \text { Southeast Only } & -0.2 & 0.2 & 0.8 \\\hline \text { National } & -1.5 & -0.2 & 2 \\\hline \text { None (don't introduce the new package) } & 0 & 0 & 0\\\hline \end{array}$
If Melissa uses the EMV criterion, the appropriate choice would be: ________.

A)Northeast Only
B)Southeast Only
C)National
D)None (don't introduce the new package)

Question 64

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

For the combination of 'Bear' and 'Mixture', the opportunity loss is ______.

A)0
B)5
C)13
D)33
E)-10

Question 65

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

For the 'T-Bills' and 'Bonds' choices, the indifference value of Hurwicz's alpha is _____.

A)0.8267
B)0.7134
C)0.6555
D)0.3333
E)0.5000

Question 66

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

For the combination of 'T-Bills' and 'Neutral', the opportunity loss is _________.

A)0
B)5
C)7
D)8
E)-10

Question 67

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the Hurwicz criterion with alpha = 0.5, the appropriate choice is ______.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question 68

The expected monetary value without information is $2,500, and the expected monetary payoff with perfect information is $5,000.The expected value of perfect information is ____________.

A)$7,500
B)$2,500
C)$1,500
D)$2,000
E)$1,250

Question 69

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$$\begin{array}{|c|c|c|c|} \hline \text { Market } & \text { Low (.3) } & \text { Medium (.4) } & \text { High (.3) } \\\hline \text { Northeast Only } & -0.7 & 0 & 1 \\\hline \text { Southeast Only } & -0.2 & 0.2 & 0.8 \\\hline \text { National } & -1.5 & -0.2 & 2 \\\hline \text { None (don't introduce the new package) } & 0 & 0 & 0\\\hline \end{array}$

The expected monetary payoff with perfect information is ________.

A)$570,000
B)$680,000
C)$760,000
D)$830,000
E)$980,000

Question 70

The expected monetary value without information is $60, and the expected monetary payoff with perfect information is $120.The expected value of perfect information is __.

A)$60
B)$2
C)$180
D)$0.50
E)$120

Question 71

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull(.5) } & \text { Neutral(.3) } & \text { Bear(.2) } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

The EMV of investing in Bonds is ________.

A)$30,000
B)$63,000
C)$78,000
D)$81,000
E)$100,000

Question 72

61.Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the maximin criterion, the appropriate choice would be ________.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question 73

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$$\begin{array}{|c|c|c|c|} \hline \text { Market } & \text { Low (.3) } & \text { Medium (.4) } & \text { High (.3) } \\\hline \text { Northeast Only } & -0.7 & 0 & 1 \\\hline \text { Southeast Only } & -0.2 & 0.2 & 0.8 \\\hline \text { National } & -1.5 & -0.2 & 2 \\\hline \text { None (don't introduce the new package) } & 0 & 0 & 0\\\hline \end{array}$

The EMV of introducing the new package in the "National" market is ________.

A)$50,000
B)$70,000
C)$90,000
D)$260,000
E)$300,000

Question 74

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull (.5)} & \text { Neutral (.3)} & \text { Bear(.2) } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

The EMV of investing in Stocks is ________.

A)$30,000
B)$63,000
C)$78,000
D)$81,000
E)$100,000

Question 75

In decision-making under risk, the expected monetary value without information is ____________.

A)the weighted average of the best payoff for each state of nature
B)the largest of the EMVs for the different decision alternatives
C)never smaller than the expected monetary payoff with perfect information
D)the average of the EMVs
E)half the expected monetary value with information

Question 76

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull(.5) } & \text { Neutral(.3) } & \text { Bear(.2) } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the EMV criterion, the appropriate choice is ________.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)Bank CD's

Question 77

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

For the 'Stocks' and 'Bonds' choices, the indifference value of Hurwicz's alpha is ____.

A)0.82
B)0.71
C)0.65
D)0.33
E)0.50

Question 78

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull(.5) } & \text { Neutral(.3) } & \text { Bear(.2) } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

The EMV of investing in Mixture is ________.

A)$30,000
B)$63,000
C)$78,000
D)$81,000
E)$100,000

Question 79

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \\\hline \text { T-Bills } & 3 & 3 & 3 \\\hline \text { Stocks } & 21 & 11 & -30 \\\hline \text { Bonds } & 15 & 4 & -3 \\\hline \text { Mixture } & 13 & 6 & -10 \\\hline\end{array}$

If Ray uses the Hurwicz criterion with alpha = 0.9, the appropriate choice is ______.

A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question 80

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$$\begin{array}{|c|c|c|c|} \hline \text { Market } & \text { Low (.3) } & \text { Medium (.4) } & \text { High (.3) } \\\hline \text { Northeast Only } & -0.7 & 0 & 1 \\\hline \text { Southeast Only } & -0.2 & 0.2 & 0.8 \\\hline \text { National } & -1.5 & -0.2 & 2 \\\hline \text { None (don't introduce the new package) } & 0 & 0 & 0\\\hline \end{array}$

The EMV of introducing the new package in the "Northeast Only" market is ________.

A)$50,000
B)$70,000
C)$90,000
D)$260,000
E)$300,000