Deck 2: Supplement Operational Decision-Making Tools: Decision Analysis

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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 these answers is correct.

Answer 3

A

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Fairco,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 Fairco 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 9

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

Question 10

Fairco,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 Fairco 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 11

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

Question 12

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 13

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

Question 14

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

Question 15

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 these answers is correct.

Question 16

Fairco,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 Fairco 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

Fairco,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 Fairco 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 18

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

Question 19

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

Question 20

Fairco,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 Fairco 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 21

Consider the following payoff table with amounts in $ millions. If you are using Hurwicz and decide d₃,then the coefficient of optimism,α,is ______.

A)undetermined;there is not enough information to find the answer
B)unfeasible;there is no value of α that would make you choose d₃
C)larger than 0.85
D)less than 0.83

Question 22

Kallie Inc. ,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 Kallie Inc.is

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

Question 23

Kallie Inc. ,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 Kallie Inc. ,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 24

Kallie Inc. ,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 Kallie Inc.using the maximin decision criterion is to

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

Question 25

Fairco,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 26

Fairco,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 27

Kallie Inc. ,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 Kallie Inc.using the maximax decision criterion is to

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

Question 28

Fairco,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 Fairco is

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

Question 29

Kallie Inc. ,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 30

Consider the following payoff table,where the amounts are in $ millions: If you are using Hurwicz criterion with α = 0.45 (where α is the coefficient of optimism)and decide d₃,then x is ______.

A)unfeasible;there is no value of x that would make you choose d₃
B)larger than 4
C)larger than 6.5
D)larger than 11.16

Question 31

Kallie Inc. ,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 32

Kallie Inc. ,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 33

Kallie Inc. ,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 34

Kallie Inc. ,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 Kallie Inc.using the minimax regret decision criterion is to

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

Question 35

Kallie Inc. ,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 Kallie Inc.using the equal likelihood criterion is to

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

Question 36

Fairco,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 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 best decision according to the expected value criterion is

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

Question 38

Kallie Inc. ,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 39

Fairco,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 40

What is decision analysis?

Question 41

Consider the following payoff table with amounts in $ millions. The column with investments lists mutually exclusive investment decisions.If you use the expected value criterion and you are indifferent between investments d₂ and d₃,then the probability that you assign to the state of nature S₂ is __________.

A)at least 0.45
B)at most 0.5
C)0)5
D)at least 0.5

Question 42

Consider the following payoff table with amounts in $ millions. The column with investments lists mutually exclusive investment decisions.If you use the expected value criterion and you choose investment d₂,then the probability that you assign to the state of nature S₁ is __________.

A)more than 0.25 and less than 0.67
B)more than 0.33 and less than 0.67
C)more than 0.25 and less than 0.5
D)more than 0.33 and less than 0.5

Question 43

Consider the following payoff table with amounts in $ millions. If you are using the maximin criterion and decide d₄,then x is ______.

A)at most −1
B)less than −1
C)any value
D)cannot be determined without knowing the value of y