Question 1

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years.
What is the expected value for the optimum decision alternative?

Accepted Answer

To find the expected value for the optimum decision alternative, we calculate the expected value for both the cancer and heart research labs over the two years.For the cancer lab:- Year 1: 20% chance of $100,000 and 80% chance of $0.  Expected value = (0.20 * $100,000) + (0.80 * $0) = $20,000.- Year 2 (if not funded Year 1): 50% chance of $100,000 and 50% chance of $0.  Expected value = (0.50 * $100,000) + (0.50 * $0) = $50,000.  However, this $50,000 is only relevant if it wasn't funded in Year 1, which has an 80% probability.  Adjusted expected value for Year 2 = 0.80 * $50,000 = $40,000.  Total expected value for cancer lab = $20,000 (Year 1) + $40,000 (Year 2) = $60,000.For the heart lab:- Year 1: 50% chance of $50,000 and 50% chance of $0.  Expected value = (0.50 * $50,000) + (0.50 * $0) = $25,000.- Year 2 (if funded Year 1): 40% chance of $50,000 and 60% chance of $0.  Expected value = (0.40 * $50,000) + (0.60 * $0) = $20,000.  Adjusted expected value for Year 2 if funded in Year 1 = 0.50 * $20,000 = $10,000.- Year 2 (if not funded Year 1): 60% chance of $50,000 and 40% chance of $0.  Expected value = (0.60 * $50,000) + (0.40 * $0) = $30,000.  Adjusted expected value for Year 2 if not funded in Year 1 = 0.50 * $30,000 = $15,000.  Total expected value for heart lab = $25,000 (Year 1) + max($10,000, $15,000) = $25,000 + $15,000 = $40,000.The optimum decision alternative is the cancer lab with an expected value of $60,000.

Question 2

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the expected value for the decision alternative to write the statistics book?

Accepted Answer

The expected value for the decision to write the statistics book is calculated as follows: For a major publisher, the expected sales are 50,000 copies with a 40% chance, which equals 20,000 copies (0.4 * 50,000). For a smaller publisher, the expected sales are 35,000 copies with a 50% chance, which equals 17,500 copies (0.5 * 35,000). Adding these together gives an expected value of 37,500 copies, not 30,500 as initially stated. My mistake in the calculation led to an incorrect answer choice being provided. The correct calculation should indeed reflect the accurate expected value based on the probabilities and outcomes given for the statistics book option.

Question 3

The dean of a college wants to determine which of two new classes to offer for the upcoming semester. Due to facility constraints only one class can be offered at this time. The dean feels that the first class has an 80 percent chance of earning the college about $75,000, but a 20 percent chance of losing $35,000. If the class is successful, then its next level class will be offered, with a 75 percent chance of earning $60,000, but a 25 percent chance of losing $30,000. Weighing the options, the dean feels that the second class has a 60 percent chance of earning $85,000, but a 40 percent chance of losing $40,000. If the second class is successful, then its next level class will be offered with a 50 percent chance of earning $80,000, but a 50 percent chance of losing $45,000. If both classes are not successful, neither of their next level classes will be offered to the students.What is the expected value for selecting the second class?

Accepted Answer

The expected value (EV) for selecting the second class can be calculated as follows:First, calculate the expected value of the second class itself:$$EV_{\text{second class}} = (0.60 \times \$85,000) + (0.40 \times -\$40,000) = \$51,000 - \$16,000 = \$35,000$$Then, calculate the expected value of the next level of the second class, given that the second class is successful:$$EV_{\text{next level of second class}} = (0.50 \times \$80,000) + (0.50 \times -\$45,000) = \$40,000 - \$22,500 = \$17,500$$However, the next level class is only offered if the second class is successful, which has a 60% chance. So, the expected value of offering the next level class, factoring in the probability of the second class being successful, is:$$0.60 \times \$17,500 = \$10,500$$Finally, add the expected values of the second class and its next level class together:$$EV_{\text{total for second class}} = \$35,000 + \$10,500 = \$45,500$$Therefore, the expected value for selecting the second class is \$45,500.

Question 4

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the expected value for the optimum decision alternative?

Accepted Answer

For the economics book, the expected sales are calculated as follows: - 50% chance of major publisher * 40,000 copies = 20,000 copies- 50% chance of not getting a major publisher * 80% chance of smaller publisher * 30,000 copies = 12,000 copiesTotal expected sales for economics book = 20,000 + 12,000 = 32,000 copiesFor the statistics book, the expected sales are calculated as follows:- 40% chance of major publisher * 50,000 copies = 20,000 copies- 60% chance of not getting a major publisher * 50% chance of smaller publisher * 35,000 copies = 10,500 copiesTotal expected sales for statistics book = 20,000 + 10,500 = 30,500 copiesTherefore, the optimum decision alternative based on expected sales is to write the economics book, with an expected value of 32,000 copies.

Question 5

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years.
What is the expected value for the decision alternative to select the cancer lab?

Accepted Answer

The expected value for the cancer lab is $60,000. This is calculated as follows:Year 1: 20% chance of getting $100,000, 80% chance of getting nothing. Expected value = (0.2 * $100,000) + (0.8 * $0) = $20,000.Year 2: If funded in year 1, no additional funding. If not funded in year 1, 50% chance of getting $100,000, 50% chance of getting nothing. Expected value = (0.5 * $100,000) + (0.5 * $0) = $50,000.Total expected value = $20,000 + $50,000 = $60,000.

Question 6

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the expected value for the decision alternative to write the economics book?

Accepted Answer

The expected value for the decision to write the economics book is calculated as follows: - There's a 50% chance of selling 40,000 copies (major publisher), which is 0.5 * 40,000 = 20,000 copies expected.- If not placed with a major publisher, there's a 50% chance of not placing it with a major publisher, of which there's an 80% chance of selling 30,000 copies with a smaller publisher. This gives 0.5 * 0.8 * 30,000 = 12,000 copies expected.- Adding these together, the total expected value is 20,000 + 12,000 = 32,000 copies.

Question 7

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years.
What is the expected value for the decision alternative to select the heart lab?

Accepted Answer

The expected value for the heart lab is calculated as follows:  Year 1: 0.5 * $50,000 + 0.5 * $0 = $25,000  Year 2 if funded in Year 1: 0.4 * $50,000 + 0.6 * $0 = $20,000  Year 2 if not funded in Year 1: 0.6 * $50,000 + 0.4 * $0 = $30,000  Total expected value = $25,000 + 0.5 * $20,000 + 0.5 * $30,000 = $50,000.

Question 8

Which of the following is not a stage in the decision-making process?

Accepted Answer

Monitoring the competition is not considered a stage in the traditional decision-making process. The decision-making process typically involves identifying a problem or opportunity, specifying objectives, developing suitable alternatives, analyzing and comparing these alternatives, and then selecting the best alternative. Monitoring the competition might inform these stages but is not a stage itself.

Question 9

A decision maker's worst option has an expected value of $2,550, and the decision maker's best option has an expected value of $4,750. With perfect information, the expected value would be $6,000. The decision maker has received an offer from a banking firm that will make their position risk-free for a fee of $600. How much better off will the decision maker be if they take the offer?

Accepted Answer

The answer of A decision maker's worst option has an...

Question 10

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the probability that the economics book would wind up being placed with a smaller publisher?

Accepted Answer

The answer of Two professors at a nearby university want...

Question 11

Risk implies that there are certain parameters that have _____ outcomes.

Accepted Answer

Risk involves situations where outcomes are probabilistic, meaning they can be estimated with certain probabilities but are not guaranteed.

Question 12

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $5,000 in environment 1 and $27,500 in environment 2. Once the probability of environment 1 exceeds ______, option A becomes the better choice.

Accepted Answer

The answer of Option A has a payoff of $10,000...

Question 13

When a decision-making scenario involves two or more departments, if the individual departments pursue what is optimal for them, sometimes the overall organization suffers. This is an example of:

Accepted Answer

Suboptimization occurs when different parts of an organization (such as departments) make decisions that are optimal for their own interests but detrimental to the organization as a whole.

Question 14

The dean of a college wants to determine which of two new classes to offer for the upcoming semester. Due to facility constraints only one class can be offered at this time. The dean feels that the first class has an 80 percent chance of earning the college about $75,000, but a 20 percent chance of losing $35,000. If the class is successful, then its next level class will be offered, with a 75 percent chance of earning $60,000, but a 25 percent chance of losing $30,000. Weighing the options, the dean feels that the second class has a 60 percent chance of earning $85,000, but a 40 percent chance of losing $40,000. If the second class is successful, then its next level class will be offered with a 50 percent chance of earning $80,000, but a 50 percent chance of losing $45,000. If both classes are not successful, neither of their next level classes will be offered to the students.What is the expect value for the optimum decision alternative?

Accepted Answer

The answer of The dean of a college wants to...

Question 15

A decision making involving certainty about potential future conditions will have a relatively _____ decision.

Accepted Answer

When decision-making involves certainty about potential future conditions, it means that the outcomes of decisions are known, making the decision-making process relatively straightforward.

Question 16

A decision maker's worst option has an expected value of $2,550, and the decision maker's best option has an expected value of $4,750. With perfect information, the expected value would be $6,000. What is the expected value of perfect information?

Accepted Answer

The expected value of perfect information is the difference between the expected value with perfect information and the best expected value without it. So, $6,000 - $4,750 = $1,250.

Question 17

Which of the following would make decision trees an especially attractive decision-making tool?

Accepted Answer

Decision trees are particularly useful for mapping out and analyzing a sequence of decisions, as they visually break down the possible outcomes and choices at each step.

Question 18

The dean of a college wants to determine which of two new classes to offer for the upcoming semester. Due to facility constraints only one class can be offered at this time. The dean feels that the first class has an 80 percent chance of earning the college about $75,000, but a 20 percent chance of losing $35,000. If the class is successful, then its next level class will be offered, with a 75 percent chance of earning $60,000, but a 20 percent chance of losing $30,000. Weighing the options, the dean feels that the second class has a 60 percent chance of earning $85,000, but a 40 percent chance of losing $40,000. If the second class is successful, then its next level class will be offered with a 50 percent chance of earning $80,000, but a 50 percent chance of losing $45,000. If both classes are not successful, neither of their next level classes will be offered to the students.What is the expected value for selecting the first class?

Accepted Answer

The expected value for selecting the first class is $83,000. This is calculated by multiplying the probability of each outcome by the corresponding payoff and then summing the results. For the first class, the probability of earning $75,000 is 0.8, the probability of losing $35,000 is 0.2, the probability of earning $60,000 is 0.75, and the probability of losing $30,000 is 0.2. The expected value is therefore:(0.8 x $75,000) + (0.2 x -$35,000) + (0.75 x $60,000) + (0.2 x -$30,000) = $83,000

Question 19

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

Accepted Answer

The answer of Option A has a payoff of $10,000...

Question 20

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the probability that the statistics book would wind up being placed with a smaller publisher?

Accepted Answer

For the statistics book, there's a 40% chance of placing it with a major publisher. This means there's a 60% chance it won't be placed with a major publisher. Of that 60%, there's a 50% chance it will be placed with a smaller publisher. Therefore, the probability is 60% * 50% = 30% or 0.3.

Quiz 5: Strategic Capacity Planning for Products and Services

Which of the following is not a stage in the decision-making process?

Risk implies that there are certain parameters that have _____ outcomes.

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $5,000 in environment 1 and $27,500 in environment 2. Once the probability of environment 1 exceeds ______, option A becomes the better choice.

When a decision-making scenario involves two or more departments, if the individual departments pursue what is optimal for them, sometimes the overall organization suffers. This is an example of:

A decision making involving certainty about potential future conditions will have a relatively _____ decision.

A decision maker's worst option has an expected value of $2,550, and the decision maker's best option has an expected value of $4,750. With perfect information, the expected value would be $6,000. What is the expected value of perfect information?

Which of the following would make decision trees an especially attractive decision-making tool?

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.