Deck 17: Operational Decision-Making Tools: Decision Analysis

Question 1

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.

Answer 1

C

Question 2

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

Answer 2

True

Question 3

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

Answer 3

C

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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.

Question 13

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

Question 14

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 15

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 16

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

Question 17

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 18

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

Question 19

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

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 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 21

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 22

What is decision analysis?

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, 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 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, 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 25

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 26

The expected value for
Small Investment $100,000+62,500+$2,500=$165,000
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 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 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 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

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 30

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 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 best decision for Kallie Inc. using the equal likelihood criterion is to

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

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. 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 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 of perfect information for Kallie Inc.is

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

Question 34

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 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 maximin decision criterion is to

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

Question 36

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 37

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 38

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.