Question 1

Economy
An investor has constructed the following payoff table for his profit in thousands of dollars. $$\begin{array}{l}
\text { The state of the economy will be }\
\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Invest in } \
\text { company }
\end{array} & \begin{array} { c } 
\text { Weak } \
\mathbf { ( 0 . 2 ) }
\end{array} & \begin{array} { c } 
\text { Moderate } \
\mathbf { ( 0 . 4 ) }
\end{array} & \begin{array} { c } 
\text { Strong } \
\mathbf { ( 0 . 4 ) }
\end{array} \
\hline \mathrm { A } & - \$ 45 & \$ 35 & \$ 65 \
\mathrm {~B} & - \$ 25 & \$ 25 & \$ 50 \
\mathrm { C } & \$ 29 & \$ 33 & \$ 35 \
\hline
\end{array}
\end{array}$$
-What is the most the investor should be willing to pay for perfect information about the future state of the economy?
____________________ thousand

Accepted Answer

The answer of Economy
An investor has constructed the following payoff...

Question 2

State of Nature
The following table displays the payoffs (in thousands of dollars)for five different decision alternatives under three possible states of nature: $$\begin{array}{l}
\text { State of Nature }\
\begin{array} { | c | c | c | c | } 
\hline \text { Alternative } & \begin{array} { c } 
\text { I } \
\text { Prob. } = \mathbf { 0 . 2 }
\end{array} & \begin{array} { c } 
\text { II } \
\text { Prob. } = \mathbf { 0 . 3 }
\end{array} & \begin{array} { c } 
\text { III } \
\text { Prob. } = \mathbf { 0 . 5 }
\end{array} \
\hline \text { A } & \$ 110 & \$ 80 & - \$ 20 \
\text { B } & \$ 90 & \$ 85 & \$ 10 \
\text { C } & \$ 45 & \$ 65 & \$ 45 \
\text { D } & \$ 30 & \$ 60 & \$ 65 \
\text { E } & \$ 10 & \$ 25 & \$ 70 \
\hline
\end{array}
\end{array}$$
-Calculate the expected opportunity loss for Alternative A (in thousands of dollars).
____________________ thousand

Accepted Answer

The answer of State of Nature
The following table displays the...

Question 3

The expected value of perfect information is the same as:
A) maximin payoff.
B) maximax payoff.
C) the expected opportunity loss for the best alternative.
D) the expected payoff.
E) the expected payoff with perfect information.

Accepted Answer

The expected value of perfect information (EVPI) is equal to the expected opportunity loss (EOL) for the best alternative, as it represents the maximum amount a decision-maker would be willing to pay for perfect information.

Question 4

A civic organization cooks and serves pancakes once a year as a fundraiser and has done so for the past 25 years.The pancake grill size requires pancakes to be cooked in advance of the orders for them.All labor is donated,but the electricity and pancake supplies cost $0.20 per pancake.Each pancake sells for $0.60.From past records it appears that the distribution of pancake sales is approximately normal with a mean of 3000 and a standard deviation of 450.Cooked,but unsold pancakes are given to anyone who wishes to take them.Find the number of cooked pancakes that will yield the maximum profit for the project.
____________________ pancakes
Remove all commas from your answer before submitting.

Accepted Answer

The answer of A civic organization cooks and serves pancakes...

Question 5

State of Nature
The following table displays the payoffs (in thousands of dollars)for five different decision alternatives under three possible states of nature: $$\begin{array}{l}
\text { State of Nature }\
\begin{array} { | c | c | c | c | } 
\hline \text { Alternative } & \begin{array} { c } 
\text { I } \
\text { Prob. } = \mathbf { 0 . 2 }
\end{array} & \begin{array} { c } 
\text { II } \
\text { Prob. } = \mathbf { 0 . 3 }
\end{array} & \begin{array} { c } 
\text { III } \
\text { Prob. } = \mathbf { 0 . 5 }
\end{array} \
\hline \text { A } & \$ 110 & \$ 80 & - \$ 20 \
\text { B } & \$ 90 & \$ 85 & \$ 10 \
\text { C } & \$ 45 & \$ 65 & \$ 45 \
\text { D } & \$ 30 & \$ 60 & \$ 65 \
\text { E } & \$ 10 & \$ 25 & \$ 70 \
\hline
\end{array}
\end{array}$$
-Calculate the expected value of perfect information (EVPI)in thousands of dollars.
____________________ thousand

Accepted Answer

The answer of State of Nature
The following table displays the...

Question 6

When Jessica takes the direct route to work,she gets there in 25 minutes if no train is at the railroad crossing.When a train is using the crossing,her travel time is 10 minutes longer.Her alternative is a route that takes 32 minutes to travel,but has no traffic signals or other delays.Assuming that shorter transit times are more desirable,which route will Jessica select if she uses the maximin criterion? Explain.

Accepted Answer

The answer of When Jessica takes the direct route to...

Question 7

Scenario
A company must decide whether or not to change its packaging now to a more environmentally safe material.The impact of the decision on profits depends on which future scenario develops.Scenario 1 is that the media does not focus heavily on concerns about packaging and no new laws requiring changes in packaging are passed.Under this scenario,the company will make $30 million if they change their packaging now,but will make $70 million if they do not change their packaging now.Scenario 2 is that the media does focus heavily on concerns about packaging and no new laws requiring changes in packaging are passed.Under this scenario,the company will make $45 million if they change their packaging now,but will make $50 million if they do not change their packaging now.Scenario 3 is that the media does focus heavily on concerns about packaging and new laws requiring changes in packaging are passed.Under this scenario,the company will make $55 million if they change their packaging now,but will make only $10 million if they do not change their packaging now.The probabilities of the three scenarios are 0.3,0.5,and 0.2,respectively.
-What is the most the company should be willing to pay for a research study designed to reduce its uncertainty about media and legal developments concerning packaging?
____________________ million

Accepted Answer

The answer of Scenario
A company must decide whether or not...

Question 8

What is the most the firm would be willing to pay for a research study designed to reduce its uncertainty about market conditions?
____________________ million

Accepted Answer

The answer of What is the most the firm would...

Question 9

The manager of a grocery store pays 60 cents for each rose and sells them for $1.50 each.Roses left at the end of the day are discarded.The daily demand can be approximated by a normal distribution having a mean of 250 and a standard deviation of 40.To maximize his expected profit,how many roses should the manager buy before the market opens each day?
____________________ roses

Accepted Answer

The answer of The manager of a grocery store pays...

Question 10

A California mango grower is considering the installation of a heating system to protect his crop in the event of frost during the coming winter.What would be the rows and columns of a payoff table applicable to this decision?
Rows:
Columns:

Accepted Answer

The answer of A California mango grower is considering the...

Question 11

A fruit stand manager must decide how many pounds of bananas to stock weekly.From past records it appears that the demand for bananas is approximately normal with a mean of 1,200 pounds and a standard deviation of 400 pounds.The cost of the bananas is $0.15 per pound and the usual selling price is $0.45 per pound.At the end of each week a hog farmer comes by the fruit stand and purchases any unsold,over-ripened bananas for $0.05 per pound.Calculate the amount of bananas the manager needs to purchase each week to maximize his profit.
____________________ pounds

Accepted Answer

The answer of A fruit stand manager must decide how...

Question 12

A retailer can purchase units of a perishable item for 75 cents each.The retailer sells the item for $2.00.Unsold items are worthless and will be discarded.If demand for the item can be approximated by a normal distribution having a mean of 150 and a standard deviation of 30,how many units should the retailer stock to maximize expected profit?
____________________ items

Accepted Answer

The answer of A retailer can purchase units of a...

Question 13

A silk screen T-shirt Company buys T-shirts and places designs on them.The cost of the T-shirt is $2.00.Placing the designs on shirts costs $3.00.The shirts sell for $12.Unsold shirts are donated to charity.The monthly demand for T-shirts with designs runs at a mean of 400 and a standard deviation of 50 T-shirts and is approximately normally distributed.What is the profit maximizing number of T-shirts to purchase each month?
____________________ T-shirts

Accepted Answer

The answer of A silk screen T-shirt Company buys T-shirts...

Question 14

When Jessica takes the direct route to work,she gets there in 25 minutes if no train is at the railroad crossing.When a train is using the crossing,her travel time is 10 minutes longer.Her alternative is a route that takes 32 minutes to travel,but has no traffic signals or other delays.Assuming that shorter transit times are more desirable,which route will Jessica select if she uses the minimax regret criterion? Explain.

Accepted Answer

The answer of When Jessica takes the direct route to...

Question 15

Another term for regret is ______________________________.

Accepted Answer

The answer of Another term for regret is ______________________________....

Question 16

When Jessica takes the direct route to work,she gets there in 25 minutes if no train is at the railroad crossing.When a train is using the crossing,her travel time is 10 minutes longer.Her alternative is a route that takes 32 minutes to travel,but has no traffic signals or other delays.Assuming that shorter transit times are more desirable,which route will Jessica select if she uses the maximax criterion? Explain.

Accepted Answer

The answer of When Jessica takes the direct route to...

Question 17

State of Nature
The following table displays the payoffs (in thousands of dollars)for five different decision alternatives under three possible states of nature: $$\begin{array}{l}
\text { State of Nature }\
\begin{array} { | c | c | c | c | } 
\hline \text { Alternative } & \begin{array} { c } 
\text { I } \
\text { Prob. } = \mathbf { 0 . 2 }
\end{array} & \begin{array} { c } 
\text { II } \
\text { Prob. } = \mathbf { 0 . 3 }
\end{array} & \begin{array} { c } 
\text { III } \
\text { Prob. } = \mathbf { 0 . 5 }
\end{array} \
\hline \text { A } & \$ 110 & \$ 80 & - \$ 20 \
\text { B } & \$ 90 & \$ 85 & \$ 10 \
\text { C } & \$ 45 & \$ 65 & \$ 45 \
\text { D } & \$ 30 & \$ 60 & \$ 65 \
\text { E } & \$ 10 & \$ 25 & \$ 70 \
\hline
\end{array}
\end{array}$$
-Calculate the expected payoff with perfect information (in thousands of dollars).
____________________ thousand

Accepted Answer

The answer of State of Nature
The following table displays the...

Question 18

Incremental analysis involves the key terms of ______________________________ and ___________________________________.

Accepted Answer

The answer of Incremental analysis involves the key terms of...

Question 19

For each of the following,indicate whether the behavior represents the maximin criterion or the maximax criterion.Explain your reasoning.
A)A truck driver is behind schedule and knows he is approaching an area where police radar is often encountered, but he continues driving at 20 mph over the speed limit. Explain:
B)A struggling retailer hires a public relations firm to carry out an intensive promotional campaign for her store. If the campaign is not extremely successful, the retailer will not be able to pay the PR firm and will be in danger of defaulting on next month's payroll. Explain:	
C)The owner of a medical clinic buys liability insurance. Explain:

Accepted Answer

The answer of For each of the following,indicate whether the...

Question 20

Market Condition
Three different designs are being considered for a new refrigerator,and profits will depend on the combination of the refrigerator design and market condition.The following payoff table summarizes the decision situation,with amounts in millions of dollars. $$\begin{array}{l}
\text { Market Condition }\
\begin{array} { | c | c | c | c | } 
\hline \text { Design } & \text { I } & \text { II } & \text { III } \
\hline \mathrm { A } & 27 & 16 & 8 \
\mathrm {~B} & 17 & 18 & 20 \
\mathrm { C } & 7 & 12 & 42 \
\hline
\end{array}
\end{array}$$
-Assume that the probabilities for the three market conditions are estimated as 0.1,0.6,and 0.3,respectively.Determine the expected payoff value that would be realized if perfect information were available.
____________________ million

Accepted Answer

The answer of Market Condition
Three different designs are being considered...

Quiz 19: Decision Theory

The expected value of perfect information is the same as:

What is the most the firm would be willing to pay for a research study designed to reduce its uncertainty about market conditions? ____________________ million

A California mango grower is considering the installation of a heating system to protect his crop in the event of frost during the coming winter.What would be the rows and columns of a payoff table applicable to this decision? Rows: Columns:

Another term for regret is ______________________________.

Incremental analysis involves the key terms of and _____.