Deck 15: Decision Theory

Question 1

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.

Answer 1

False

Question 2

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 levels of demand (high,medium,low)represent alternatives.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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,i = 1,2,3)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. $$\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) 1 } & 10 & 80 & 70 \\\text { Alternative (strategy) 2 } & 60 & 120 & 50\end{array}$$
The best alternative (course of action)for the EKA manufacturing company using the maximax criterion is alternative 1.

Question 5

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

Question 6

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

Question 7

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

Question 8

Maximin is a criterion used when making decisions under certainty.

Question 9

Maximin is a criterion used when making decisions under _____________.

A)uncertainty
B)certainty
C)risk
D)alternatives
E)states of nature

Question 10

The maximax criterion is preferred by pessimistic decision-makers.

Question 11

Maximax is a criterion used when making decisions under uncertainty.

Question 12

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

Question 13

A decision-maker's expected utility is based upon their attitude towards risk.

Question 14

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
E)optimism

Question 15

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

Question 16

The maximin criterion is preferred by optimistic decision-makers.

Question 17

In a decision tree,the branches emanating from a decision point represent states of nature.

Question 18

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
E)pessimism

Question 19

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.

Question 20

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 making decisions under _____.

A)certainty
B)uncertainty
C)risk
D)optimism
E)pessimism

Question 21

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

A)risk averse
B)risk neutral
C)risk seeking

Question 22

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 23

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 (Si, i = 1, 2, 3) 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.
$$\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) } 1 & 10 & 80 & 70 \\\text { Alternative (strategy) } 2 & 60 & 120 & 50\end{array}$$

-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 = $58,000,EMV₂ = $95,000,choose strategy 2
C)EMV₁ = $58,000,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 24

An investor is looking at three possible investments: growth stock,blue chip stock,or municipal bonds.The investment performance will vary depending on the investment market condition of Bull (market rising),flat,or Bear (market falling).The investment return for each investment for the corresponding market conditions is given below: $$\begin{array} { | l | l | l | l | } \hline & \text { Bull } & \text { Flat } & \text { Bear } \\\hline \text { Growth Stock } & 20 & 1 & - 6 \\\hline \text { Blue Chip } & 9 & 8 & 0 \\\hline \text { Bonds } & 4 & 4 & 4 \\\hline\end{array}$$
Which investment would the investor select if the maximin criterion is used?

A)Growth Stock
B)Blue Chip
C)Bonds

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 a virus detection kit wants to determine the probability of a person without the virus receiving a positive text result.It is estimated that the probability of infected potential users of the kit is 10%.According to the company laboratory test results,1 out of 100 viral-free people tested positive (false positive).On the other hand,1 out of 200 infected people tested negative (false negative).A person has just used the detection kit manufactured by the company and the results showed they had the virus.What is the probability that the person is infected?

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

Question 27

A person's utility is determined by the preferences they exhibit for decision choices involving __________.

A)certainty
B)uncertainty
C)risk
D)Bayes' Theorem
E)optimism

Question 28

An investor has the following utilities corresponding to various possible returns on an investment:
$\begin{array}{|c|l|}\hline \text { Profit } &{\text { Utility }} \\\hline \$ 100,000 & 1 \\\hline \$ 75,000 & 0.9 \\\hline \$ 40,000 & 0.6 \\\hline \$ 0 & 0.25 \\\hline-\$ 5,000 & 0.10 \\\hline-\$ 10,000 & 0 \\\hline\end{array}$

-The investor is considering two potential investments with the following potential returns and the probability of these returns. $\begin{array}{|l|l|r|l|}\hline \text { Investment } 1&&\text { Investment } 2\\\hline \text { Profit } & \text { Probability } &{\text { Profit }} & \text { Probability } \\\hline \$ 75,000 & 0.1 & \$ 100,000 & 0.2 \\\hline \$ 40,000 & 0.4 & \$ 75,000 & 0.3 \\\hline \$ \quad 0 & 0.5 & -\$ \quad 5000 & 0.5 \\\hline\end{array}$
Which investment should the investor choose and why?

A)Investment 2 because it has the highest expected monetary value of $40,000.
B)Investment 1 because it has the lowest expected monetary value of $23,500.
C)Investment 2 because it has the highest expected utility of 0.52.
D)Investment 1 because it has the lowest expected utility of 0.455.
E)Cannot be determined without more information.

Question 29

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,i = 1,2,3)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. $$\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) 1 } & 10 & 80 & 70 \\\text { Alternative (strategy) 2 } & 60 & 120 & 50\end{array}$$
The best alternative (course of action)for the EKA manufacturing company using the maximin criterion is strategy __ which assures a guaranteed minimum payoff of _____.

A)1,$10,000
B)2,$120,000
C)1,$100,000
D)2,$50,000
E)2,$80,000

Question 30

Maximax is a criterion used when making decisions under __________________.

A)certainty
B)uncertainty
C)risk
D)alternatives

Question 31

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

A)certainty
B)uncertainty
C)risk
D)alternatives
E)states of nature

Question 32

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 33

A pharmaceutical company manufacturing a virus detection kit wants to determine the probability of a person without the virus receiving a positive text result.It is estimated that the probability of infected potential users of the kit is 10%.According to the company laboratory test results,1 out of 100 viral-free people tested positive (false positive).On the other hand,1 out of 200 infected people tested negative (false negative).A person has just used the detection kit manufactured by the company and the results showed they had the virus.What is the probability that the person is viral-free?

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

Question 34

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

A)expected utility
B)expected monetary value
C)maximin
D)maximax
E)decision theory

Question 35

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

A)risk averse
B)risk neutral
C)risk seeking

Question 36

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

A)risk averse
B)risk neutral
C)risk seeking

Question 37

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 (Si, i = 1, 2, 3) 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.
$$\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) } 1 & 10 & 80 & 70 \\\text { Alternative (strategy) } 2 & 60 & 120 & 50\end{array}$$

-What is the maximum amount that the company would be willing to pay for perfect information?

A)$95,000
B)$112,000
C)$17,000
D)$24,000
E)$2,000

Question 38

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 39

An investor has the following utilities corresponding to various possible returns on an investment:
$\begin{array}{|c|l|}\hline \text { Profit } &{\text { Utility }} \\\hline \$ 100,000 & 1 \\\hline \$ 75,000 & 0.9 \\\hline \$ 40,000 & 0.6 \\\hline \$ 0 & 0.25 \\\hline-\$ 5,000 & 0.10 \\\hline-\$ 10,000 & 0 \\\hline\end{array}$

-The investor is considering an investment with the following potential returns and the probability of these returns. $$\begin{array} { | c | l | } \hline { \text { Profit } } & \text { Probability } \\\hline \$ 100,000 & 0.1 \\\hline \$ 40,000 & 0.5 \\\hline - \$ 10,000 & 0.4 \\\hline\end{array}$$
What is the investor's expected utility for this investment?

A)$26,000
B)$40,000
C)0.33
D)0.4
E)Cannot be determined.

Question 40

An investor is looking at three possible investments: growth stock,blue chip stock,or municipal bonds.The investment performance will vary depending on the investment market condition of Bull (market rising),flat,or Bear (market falling).The investment return for each investment for the corresponding market conditions is given below: $$\begin{array} { | l | l | l | l | } \hline & \text { Bull } & \text { Flat } & \text { Bear } \\\hline \text { Growth Stock } & 20 & 1 & - 6 \\\hline \text { Blue Chip } & 9 & 8 & 0 \\\hline \text { Bonds } & 4 & 4 & 4 \\\hline\end{array}$$
Which investment would the investor select if the maximax criterion is used?

A)Growth Stock
B)Blue Chip
C)Bonds

Question 41

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 are called the ____________________________.

Question 42

In a decision tree,the branches emanating from a circular node represent the possible ___________________.

Question 43

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

Question 44

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

Question 45

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is not defective.Based on this additional information,what is the revised (posterior)probability for the reject state?

A)24
B)52
C)18
D)39
E)78

Question 46

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

A)seeking
B)averse
C)neutral

Question 47

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

Question 48

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.

Question 49

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is not defective.Based on this additional information,what is the revised (posterior)probability for the further analyze state?

A)24
B)52
C)18
D)39
E)78

Question 50

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

Question 51

A company wants to add a new product to its existing line of products.There are two similar candidate products A and B The demand for the new product could be high,medium,or low with probabilities of .25,.5,and .25 respectively.The demand and the corresponding profit for each product is: $$\begin{array} { | l | l | l | l | } \hline & \text { High } & \text { Medium } & \text { Low } \\\hline \text { Product A } & 40,000 & 30,000 & 20,000 \\\hline \text { Product B } & 70,000 & 20,000 & 0 \\\hline\end{array}$$ Based on the expected value criterion,which product should be chosen?

A)Product A
B)Product B
C)Either product since they have the same expected demand.
D)Expected demand cannot be used as a basis of decision.

Question 52

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is defective.Based on this additional information,what is the revised (posterior)probability for the reject state?

A)44
B)52
C)18
D)08
E)48

Question 53

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

Question 54

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is defective.Based on this additional information,what is the revised (posterior)probability for the accept state?

A)24
B)52
C)18
D)39
E)48

Question 55

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

Question 56

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

Question 57

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is defective.Based on this additional information,what is the revised (posterior)probability for the further analyze state?

A)44
B)52
C)18
D)39
E)48

Question 58

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.

Question 59

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. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is not defective.Based on this additional information,what is the revised (posterior)probability for the accept state?

A)24
B)52
C)18
D)39
E)78

Question 60

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

Question 61

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

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,i = 1,2,3)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 favourable weather conditions.14 of the 28 months with medium demand had favourable weather conditions.Only 1 of the 5 months with low demand had favourable weather conditions.

-If the weather conditions are favourable,determine which manufacturing strategy the company should implement?

Question 63

The __________________ criterion is preferred by optimistic decision-makers.

Question 64

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

Question 65

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

Question 66

Expected value of _________ is defined as the expected payoff under certainty subtracted by the expected payoff under risk.

Question 67

The __________________ criterion is preferred by pessimistic decision- makers.

Question 68

_____ represent a set of potential future conditions that affect the results of the decision.

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,i = 1,2,3)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 favourable weather conditions.14 of the 28 months with medium demand had favourable weather conditions.Only 1 of the 5 months with low demand had favourable 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 70

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

Question 71

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

Question 72

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

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,i = 1,2,3)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 favourable weather conditions.14 of the 28 months with medium demand had favourable weather conditions.Only 1 of the 5 months with low demand had favourable weather conditions.

-Construct the revised probability table for favourable weather conditions and find the probability of high demand given that the weather conditions are favourable.

Question 74

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 (Si, i = 1, 2, 3) 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.

Question 75

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 (Si, i = 1, 2, 3) 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 76

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 (Si, i = 1, 2, 3) 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 77

The expected _________ criterion tells the decision maker to choose the alternative with the highest expected payoff.

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 (Si, i = 1, 2, 3) 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

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

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,i = 1,2,3)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 favourable weather conditions.14 of the 28 months with medium demand had favourable weather conditions.Only 1 of the 5 months with low demand had favourable 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.