Deck 19: Decision Theory

Question 1

The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

Answer 1

False

Question 2

A set of potential future conditions that will have an affect on the results of a decision is called the states of nature.

Answer 2

True

Question 3

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk seeking decision maker.

Answer 3

False

Question 4

The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

Question 5

The expected monetary value criterion is best used when a large number of similar decisions will be made.

Question 6

When making a decision in an environment of ________________,the likelihood of each state of nature can be estimated.

A)Certainty
B)Uncertainty
C)Risk
D)Alternatives

Question 7

The maximax criterion finds the best possible payoff for each alternative,and then chooses the alternative that yields the maximum (best)possible payoff.

Question 8

The maximax criterion finds the worst possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

Question 9

Maximin is a criterion used when making decisions under _____________.

A)Uncertainty
B)Certainty
C)Risk
D)Alternatives

Question 10

A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the level of demand (high,medium,low)is the states of nature.

Question 11

Maximin is a criterion used when making decisions under certainty.

Question 12

When making a decision in an environment of ________________,the decision maker knows which of the states of nature will actually occur.

A)Certainty
B)Uncertainty
C)Risk
D)Optimism

Question 13

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars. The best alternative (course of action)for the EKA manufacturing company using the maximax criterion is alternative 1.

Question 14

When the maximin criterion is used,the decision-maker assumes that for any alternative action,the state of nature with the maximum payoff will take place.

Question 15

Maximax is a criterion used when making decisions under uncertainty.

Question 16

If the decision maker has no knowledge about the likelihood of any of the states of nature occurring,then it can be stated that the decision maker is operating in an environment of:

A)Certainty
B)Uncertainty
C)Risk
D)Optimism

Question 17

The maximin criterion is preferred by optimistic decision-makers.

Question 18

A decision-maker's expected utility is based upon his/her attitude towards risk.

Question 19

The maximax criterion is preferred by pessimistic decision-makers.

Question 20

When we use the expected monetary value criterion,the expected payoff equals the actual payoff that will be realized.

Question 21

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_i)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars. The best alternative (course of action)for the EKA manufacturing company using the maximin criterion is strategy __ and the best possible payoff is _____.

A)1,$50,000
B)2,$120,000
C)1,$100,000
D)2,$70,000
E)2,$80,000

Question 22

The expected net gain of sampling equals the expected ______________ minus the cost of sampling.

A)payoff of sampling
B)payoff of no sampling
C)value of Sample Information
D)value of Perfect Information
E)utility

Question 23

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman actually being pregnant when the test results indicate that she is not pregnant.It is estimated that the probability of pregnancy among potential users of the kit is 10%.According to the company laboratory test results 1 out of 100 non-pregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested non-pregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company and the results showed that she is not pregnant.What is the probability that she is pregnant?

A)1%
B)0.9%
C)0.05%
D)8.3%
E)0.056%

Question 24

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S₁)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand with probabilities of .3,.6 and .1 respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.What is the maximum amount that the company would be willing to pay for perfect information?

A)$95,000
B)$112,000
C)$7,000
D)$24,000
E)$17,000

Question 25

The _______________________ is the difference between the expected payoff that would have been realized had the best alternative action been selected if we know which state of nature has occurred and the expected payoff under risk.

A)Maximax criterion
B)Maximin criterion
C)Expected utility
D)Expected value of perfect information
E)Expected value of sample information

Question 26

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman not being pregnant when the test results indicate pregnancy.It is estimated that the probability of pregnancy among potential users of the kit is 10%.According to the company laboratory test results 1 out of 100 non-pregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested non-pregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company and the results showed pregnancy.What is the probability that she is not pregnant?

A)90%
B)0.9%
C)8.3%
D)91.7%
E)10.85%

Question 27

The _____________________ criterion is attractive to those decision-makers who exhibit a neutral approach towards decision choices involving risk.

A)Expected utility
B)Expected value
C)Maximin
D)Maximax
E)Decision theory

Question 28

The utility curve given below represents the preferences of a _________________ decision maker.

A)Risk averse
B)Risk neutral
C)Risk seeking
D)None of the above

Question 29

The utility curve given below represents the preferences of a _________________ decision maker.

A)Risk averse
B)Risk neutral
C)Risk seeking
D)None of the above

Question 30

The _______________________ is the difference between the expected payoff of sampling and the expected payoff based on expected monetary criterion and prior probabilities.

A)Maximax criterion
B)Maximin criterion
C)Expected utility
D)Expected value of perfect information
E)Expected value of sample information

Question 31

The utility curve given below represents the preferences of a _________________ decision maker.

A)Risk averse
B)Risk neutral
C)Risk seeking
D)None of the above

Question 32

A person's utility is determined by the preferences he/she exhibits for decision choices involving __________.

A)Certainty
B)Uncertainty
C)Risk
D)Bayes' Theorem

Question 33

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S₁)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand with probabilities of .3,.6 and .1 respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.The management believes that the weather conditions significantly impact the level of demand and the estimated probabilities of poor weather conditions given different levels of demand is presented below. What is the probability of high demand given that the weather conditions are poor?

A).06
B).44
C).1364
D).12
E).1818

Question 34

When we assess the worth of sample information in a decision making problem,we are performing a:

A)Prior analysis
B)Preposterior analysis
C)Posterior analysis
D)Payoff analysis
E)Utility analysis

Question 35

The expected value criterion is used for decision-making under __________________.

A)Certainty
B)Uncertainty
C)Risk
D)Alternatives

Question 36

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S₁)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand with probabilities of .3,.6 and .1 respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.What is the probability that weather conditions are poor,given that the demand is high?

A).2
B).5
C).8
D).25
E).75

Question 37

An automobile insurance company is in the process of reviewing its policies.Currently drivers under the age of 25 have to pay a premium.The company is considering increasing the value of the premium charged to drivers under 25.According to company records,35% of the insured drivers are under the age of 25.The company records also show that 280 of the 700 insured drivers under the age of 25 had been involved in at least one automobile accident.On the other hand,only 130 of the 1300 insured drivers 25 years or older had been involved in at least one automobile accident. An accident has just been reported.What is the probability that the insured driver is under the age of 25?

A)35%
B)20.5%
C)14%
D)68.3%
E)40%

Question 38

An automobile insurance company is in the process of reviewing its policies.Currently drivers under the age of 25 have to pay a premium.The company is considering increasing the value of the premium charged to drivers under 25.According to company records,35% of the insured drivers are under the age of 25.The company records also show that 280 of the 700 insured drivers under the age of 25 had been involved in at least one automobile accident.On the other hand,only 130 of the 1300 insured drivers 25 years or older had been involved in at least one automobile accident. What is the probability that an insured driver of any age will be involved in an accident?

A)35%
B)20.5%
C)65%
D)68.3%
E)79.5%

Question 39

Maximax is a criterion used when making decisions under __________________.

A)Certainty
B)Uncertainty
C)Risk
D)Alternatives

Question 40

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S₁)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium,and low demand with probabilities of .3,.6 and .1 respectively.The payoff values are in thousands of dollars. Find the expected monetary value for each of the alternatives and determine the best alternative (course of action)for the EKA manufacturing company using the expected monetary value criterion.

A)EMV₁ = $98,000,EMV₂ = $95,000,choose strategy 1
B)EMV₁ = $88,000,EMV₂ = $95,000,choose strategy 2
C)EMV₁ = $88,000,EMV₂ = $85,000,choose strategy 1
D)EMV₁ = $66,667,EMV₂ = $76,667 choose strategy 2
E)EMV₁ = $120,000,EMV₂ = $110,000,choose strategy 1

Question 41

The ____________________ criterion for choosing among alternative actions assumes that the state of nature with the worst payoff will be experienced.

A)Maximin
B)Certainty
C)Maximax
D)Decision

Question 42

__________________ statistics is an area of statistics that uses Bayes' theorem to update prior belief about a probability or population parameter to a posterior belief.

A)Bayesian
B)Utility theory
C)Pre-posterior analysis
D)Risk theory

Question 43

A corn farmer has categorized the weather into three possible levels.The weather conditions will affect the timing of the harvest and the associated payoff.In this situation,the weather conditions is called the ____________________________.

A)Alternatives
B)States of nature
C)Payoffs
D)Perfect information

Question 44

The __________________ criterion is preferred by optimistic decision-makers.

A)Maximax
B)Maximin
C)Utility theory
D)Risk theory

Question 45

In the application of Bayes' theorem the sample information is combined with prior probabilities to obtain ___________________ probabilities.

A)Utility
B)Maximax
C)Posterior
D)Pre-posterior

Question 46

A decision-maker's expected _____________ is based upon his/her attitude towards risk.

A)Maximax
B)Maximin
C)Utility
D)Risk theory

Question 47

A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

A)Alternative
B)Utility
C)Certainty
D)Uncertainty

Question 48

_______________________ is a diagram that assists the decision maker in analyzing a decision problem.

A)Bayes Theorem
B)Decision tree
C)Utility curve
D)Maximax

Question 49

When making a decision in an environment of ________________,the decision maker knows which of the states of nature will actually occur.

A)Risk
B)Utility
C)Certainty
D)Uncertainty

Question 50

The _____________________ is the difference between the expected value of sampling and the cost of sampling.

A)expected monetary value
B)expected value of perfect information
C)expected value of sample information
D)expected net gain of sampling

Question 51

The _______________________ is the difference between the expected payoff that would have been realized had the best alternative action been selected if we know which state of nature has occurred and the expected payoff under risk.

A)expected monetary value
B)expected value of perfect information
C)expected value of sample information
D)expected net gain of sampling

Question 52

The ____________________ criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

A)Maximin
B)Certainty
C)Maximax
D)Decision

Question 53

The expected value criterion is used for decision-making under _______________.

A)Risk
B)Utility
C)Certainty
D)Uncertainty

Question 54

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amount of money is appropriate for a risk _____ decision maker.

A)Seeking
B)Averse
C)Neutral
D)None of the above

Question 55

In a decision-making situation,the maximum amount of money that should be spent to obtain perfect information is called the ______________________________.

A)expected monetary value
B)expected value of perfect information
C)expected value of sample information
D)expected net gain of sampling

Question 56

When we assess the worth of sample information in a decision-making problem,we are performing a(n)_____________ analysis.

A)Utility
B)Maximax
C)Posterior
D)Pre-posterior

Question 57

The _____________ criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

A)Maximin
B)Certainty
C)Maximax
D)Decision

Question 58

The __________________ criterion is preferred by pessimistic decision- makers.

A)Maximax
B)Maximin
C)Utility theory
D)Risk theory

Question 59

The _____________ criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

A)Maximin
B)Certainty
C)Maximax
D)Decision

Question 60

Decision-makers in business organizations make most decisions in environments that involve some degree of ___________________.

A)Risk
B)Utility
C)Certainty
D)Uncertainty

Question 61

The _________ curve of an individual decision maker is a plot of the decision-maker's utilities versus the profits.

A)Utility
B)Maximax
C)Posterior
D)Pre-posterior

Question 62

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. Find the expected monetary value for each of the alternatives and determine the best alternative (course of action)for the EKA manufacturing company using the expected monetary value criterion.

Question 63

The expected net gain of sampling equals the ____________________ minus the cost of sampling.

A)expected monetary value
B)expected value of perfect information
C)expected value of sampling information
D)expected net gain of sampling

Question 64

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
Construct the revised probability table for poor weather conditions and find the probability of high demand given that the weather conditions are poor.

Question 65

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. Determine the best alternative (course of action)for the EKA manufacturing company using the maximin criterion.

Question 66

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman actually being pregnant when the test results indicate that she is not pregnant.It is estimated that the probability of pregnancy among potential users of the kit is 10%.According to the company laboratory test results,1 out of 100 non-pregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested non-pregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company and the results showed that she is not pregnant.What is the probability that she is pregnant?

Question 67

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂,and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.Based on this information,the prior probabilities have been revised.If the weather conditions are favorable,P(S₁)= .4286,P(S₂)= .5357,and P(S₃)= .0357,and if the weather conditions are poor,P(S₁)= .1364,P(S₂)= .6818,and P(S₃)= .1818.It is also determined that the probability of favorable weather is 0.56 and the probability of poor weather is 0.44.
Determine the expected value of sample information.What is the maximum amount that the company is willing to pay for the weather information and the additional analysis?

Question 68

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
If the weather conditions are poor,determine which manufacturing strategy the company should implement.

Question 69

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂,and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.Based on this information,the prior probabilities have been revised.If the weather conditions are favorable,P(S₁)= .4286,P(S₂)= .5357,and P(S₃)= .0357,and if the weather conditions are poor,P(S₁)= .1364,P(S₂)= .6818,and P(S₃)= .1818.It is also determined that the probability of favorable weather is 0.56 and the probability of poor weather is 0.44.
Carry out a preposterior analysis and using the revised probabilities,determine the expected monetary value when the weather conditions are favorable and determine the expected monetary value when the weather conditions are poor.

Question 70

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with Medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
What is the probability that weather conditions are poor,given that the demand is high? What is the probability that weather conditions are poor,given that the demand is medium? What is the probability that weather conditions are poor,given that the demand is low?

Question 71

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (S₁),50% chance that the lot is fair quality (S₂),and 20% chance that the lot is good quality (S₃).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. What alternative action should be selected according to maximax criterion?

Question 72

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman not being pregnant when the test results indicate pregnancy.It is estimated that the probability of pregnancy among potential users of the kit is 10%.According to the company laboratory test results,1 out of 100 non-pregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested non-pregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company and the results showed pregnancy.What is the probability that she is not pregnant?

Question 73

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
Construct the revised probability table for favorable weather conditions and find the probability of high demand given that the weather conditions are favorable.

Question 74

An automobile insurance company is in the process of reviewing its policies.Currently drivers under the age of 25 have to pay a premium.The company is considering increasing the value of the premium charged to drivers under 25.According to company records,35% of the insured drivers are under the age of 25.The company records also show that 280 of the 700 insured drivers under the age of 25 had been involved in at least one automobile accident.On the other hand,only 130 of the 1300 insured drivers 25 years or older had been involved in at least one automobile accident.
What is the probability that an insured driver of any age will be involved in an accident?

Question 75

An automobile insurance company is in the process of reviewing its policies.Currently drivers under the age of 25 have to pay a premium.The company is considering increasing the value of the premium charged to drivers under 25.According to company records,35% of the insured drivers are under the age of 25.The company records also show that 280 of the 700 insured drivers under the age of 25 had been involved in at least one automobile accident.On the other hand,only 130 of the 1300 insured drivers 25 years or older had been involved in at least one automobile accident.
An accident has just been reported.What is the probability that the insured driver is under the age of 25?

Question 76

In utility theory,a(n)__________________ decision maker is an individual who will choose the decision alternative having the highest expected profit.

A)high risk
B)low risk
C)risk neutral
D)posterior

Question 77

The _____________ criterion is best used when a large number of similar decisions will be made.

A)expected monetary value
B)expected value of perfect information
C)expected value of sample information
D)expected net gain of sampling

Question 78

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. What is the maximum amount that the company would be willing to pay for perfect information?

Question 79

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
If the weather conditions are favorable,determine which manufacturing strategy should the company should implement?

Question 80

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. Determine the best alternative (course of action)for the EKA manufacturing company using the maximax criterion.