Deck 18: Operational Decision-Making Tools: Decision Analysis

Question 1

A decision criterion in which the decision payoffs are weighted by a coefficient of optimism is known as the Hurwicz criterion.

Answer 1

True

Question 2

When probabilities are assigned to states of nature the situation is referred to as decision making under uncertainty.

Answer 2

False

Question 3

The LaPlace criterion is a decision criterion in which each state of nature is weighted equally.

Answer 3

True

Question 4

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The following payoff table describes the decision situation.

The best decision for the business using the maximin criterion would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose stable demand

Question 5

In a decision making situation the events that may occur in the future are known as states of nature.

Question 6

The outcome of a decision in referred to as a payoff.

Question 7

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The following payoff table describes the decision situation.

The best decision for the business using the minimax regret decision criterion would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose decreasing demand

Question 8

The most widely used decision-making criterion for situations with risk is expected value.

Question 9

Which of the following techniques is the most widely used decision-making criterion under risk?

A)maximax criterion
B)minimax regret criterion
C)expected value criterion
D)Hurwicz criterion

Question 10

The maximum value of perfect information to the decision maker is known as

A)the expected value of perfect information
B)the expected value of imperfect information
C)the minimum of the minimax regret
D)none of the above

Question 11

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The following payoff table describes the decision situation.

The best decision for the business using the maximax criterion would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose increasing demand

Question 12

Decision analysis is a quantitative technique supporting decision making with uncertainty.

Question 13

Quantitative methods are tools available to operations managers to help make a decision but not a recommendation.

Question 14

When probabilities can be assigned to the occurrence of states of nature in the future,the situation is referred to as

A)decision making under risk
B)decision making under certainty
C)decision making under uncertainty
D)none of the above

Question 15

A payoff table is a quantitative technique supporting decision making under uncertainty.

Question 16

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The following payoff table describes the decision situation.

The best decision for the business using the equal likelihood criterion would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose increasing demand

Question 17

A decision criterion that results in the maximum of the minimum payoffs is called a maximin criterion.

Question 18

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The following payoff table describes the decision situation.

The best decision for the business using the Hurwicz criterion with a coefficient of optimism equal to 0.80 would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose stable demand

Question 19

A sequential decision tree is a graphical method for analyzing decision situations that require a sequence of decisions over time.

Question 20

Quantitative methods are tools available to operations managers to help make a decision or recommendation.

Question 21

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

The expected value for the small investment decision is

A)$540,000
B)$400,000
C)$330,000
D)$165,000

Question 22

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand,with probabilities of 0.6 and 0.4,respectively.The following payoff table describes the company's decision situation.

The expected value for the acquire competitor decision is

A)$250,000
B)$160,000
C)$700,000
D)$1,200,000

Question 23

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand,with probabilities of 0.6 and 0.4,respectively.The following payoff table describes the company's decision situation.

The expected value for the subcontract production decision is

A)$250,000
B)$160,000
C)$700,000
D)$1,200,000

Question 24

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The regret that is associated with the decision to acquire competitor when demand is low is

A)$0
B)$525,000
C)$1,250,000
D)$1,275,000

Question 25

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

The expected value of perfect information for the family business is

A)$602,500
B)$540,000
C)$62,500
D)$25,000

Question 26

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The best decision for the manufacturer using the equal likelihood criterion is to

A)expand facilities
B)acquire competitor
C)subcontract production
D)select high demand

Question 27

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The value of the Hurwicz decision criterion for subcontract production when the coefficient of optimism is 0.30 is

A)$92,500
B)$182,500
C)$250,000
D)$275,000

Question 28

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

The expected value for the medium investment decision is

A)$600,000
B)$540,000
C)$330,000
D)$165,000

Question 29

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The best decision for the manufacturer using the minimax regret decision criterion is to

A)expand facilities
B)acquire competitor
C)subcontract production
D)select high demand

Question 30

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The best decision for the manufacturer using the maximax decision criterion is to

A)expand facilities
B)acquire competitor
C)subcontract production
D)select high demand

Question 31

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The best decision for the manufacturer using the maximin decision criterion is to

A)expand facilities
B)acquire competitor
C)subcontract production
D)select high demand

Question 32

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

If the expected value criterion is used then the best decision would be to

A)make the large investment
B)make the medium investment
C)make the small investment
D)choose the stable demand

Question 33

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.

The best decision for the manufacturer using the Hurwicz decision criterion with a coefficient of optimism equal to 0.3 is to

A)expand facilities
B)acquire competitor
C)subcontract production
D)make no decision

Question 34

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand,with probabilities of 0.6 and 0.4,respectively.The following payoff table describes the company's decision situation.

The best decision according to the expected value criterion is:

A)Acquire Competitor
B)Expand Facilities
C)Subcontract Production
D)High Demand

Question 35

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1)a large investment; (2)a medium investment;and (3)a small investment.The business believes that there are three possible future outcomes for its product: (1)increasing demand; (2)stable demand;and (3)decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

The expected value for the large investment decision is

A)$700,000
B)$540,000
C)$330,000
D)$165,000

Question 36

What is decision analysis?

Question 37

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand,with probabilities of 0.6 and 0.4,respectively.The following payoff table describes the company's decision situation.

The expected value for the expand facilities decision is

A)$250,000
B)$160,000
C)$700,000
D)$1,200,000

Question 38

A small parts manufacturer has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand,with probabilities of 0.6 and 0.4,respectively.The following payoff table describes the company's decision situation.

The expected value of perfect information for the small parts manufacturer is

A)$1,210,000
B)$700,000
C)$510,000
D)$312,500