Question

Multiple Choice Questions. Select the correct answer....

- Of the following, which one would not be considered a state of nature?

- The gross national product
- The status of legislation that could ban one of the firm’s products
- The weather
- The price of the firm’s product

- A decision maker knows the possible states of nature that could occur, but does not know their exact probabilities. He is in the situation known as:

- Risk
- Uncertainty
- Ignorance
- Confidence

- A small successful firm selects an alternative having no possibilities for either a large profit or a large loss. If a giant corporation had faced the same payoff table, its decision would have been different. Which of the following criteria was most likely used by the small firm?

- Maximin
- Maximax
- Expected payoff
- None of the preceding

- The expected value of perfect information tells us ------------- should be spent for additional information.

- Approximately how much
- The maximum amount that
- The minimum amount that
- Both (a) and (c)

**Questions 15 through 20 refer to the following
table.**

States of Nature

i (prob. = 0.2) ii (prob. = 0.8)

A 8 20

Alternatives B 10 6

C 15 5

D 9 10

- For this payoff table, what is the expected payoff for alternative B?

- 8.6
- 17.6
- 6.8
- 16.0

- What is the expected value of perfect information?

- 2.6
- 12.2
- 1.4
- 3.5

- Using the maximin criterion, which alternative will be selected?

- A
- B
- C
- D

- Using the maximax criterion, which alternative will be selected?

- A
- B
- C
- D

- Using the minimax regret criterion, which alternative will be selected?

- A
- B
- C
- D

- What is the expected opportunity loss associated with alternative A?

- 2.1
- 1.4
- 2.8
- 1.6

- A person who bases all decisions on expected payoff can be described as

- A risk avoider
- A risk taker
- Risk susceptible
- Risk neutral

Answer #1

1. Here c) **The** **weather** would
be considered as a state of nature. A state of nature is an
external variable that decision makers can't cobtrol but they can
categorise them into different parts and how it would affect each
alternative by giving different profits for each state.

2. Since the decision maker does not know the probabilies of
occurrence of each state of nature he's in a situation of b.
**Uncertainty**.

3. There's no possibility of either large profit or large loss,
so the small firm should be choosing the **Expected**
**payoff** criteria that would tell it the max
expected profit it can make and under which alternative. So option
c is correct.

4. Expected value of perfect Information= Expected value with perfect information- Expected value without perfect information

So it tells us the **maximum**
**amount** that we should spend for getting additional
Information. So option a is correct.

A television network is attempting to decide during the summer
which of the following three football games to televise on the
Saturday following Thanksgiving Day: Alabama vs. Auburn, Georgia
vs. Georgia Tech, Miami vs. Virginia Tech. The estimated viewer
ratings (millions of homes) for the games depend on the win-loss
records of the six teams, as shown in the following payoff table.
Determine the best game (most viewers) to televise using the
following decision criteria.
States of Nature - Number...

Given the following conditional value table, determine the best
alternatives under Maximax, Maximin, and Equally Likely.
Low
Moderate
High
A
$40
$100
$60
B
$85
$60
$70
C
$65
$75
$70
Which is the best alternative using the Maximax criterion? And
why?
Which is the best alternative using the Maximin criterion? And
why?
Which is the best alternative using the Equally Likely
criterion? And why?

This company is planning to enter smartwatch market.
They have 3 alternatives to consider in decision making under the
uncertain environment. Their alternatives are "Don't invest",
"Share the risk" with another company and "Do it Yourself". It is
estimated that for each alternative, there are 3 possible states of
nature as "Poorb pts.) B) Maximax approach (15 pts.) C) Maximin
Approach (15 pts.) D) Minimax Regret Approach (15 pts.)

(Show work & show 5 techniques (Maximax, Maximin, Hurwics
(A=.7), LaPlace, and Minimax Reget.
Mickey Lawson is considering investing some money that he
inherited. The following payoff table gives the profits that would
be realized during the next year for each of three investment
alternatives Mickey is considering:
a. What decision would maximize expected profits?
b. What is the maximum amount that should be paid for a perfect
forecast of the economy?
State of Nature
Decision Alternative
Good Economy
Poor...

A manager has developed a payoff table that indicates the
profits associated with a set of alternatives under two possible
states of nature.
Alt S1 S2
1 10 2
2 -2 8
3 8 5
If the manager uses maximin as the decision criterion, which of
the alternatives should she choose?
A.
Alternative 1
B.
Alternative 2
C.
Alternative 3
D.
None of the above

Given is a decision payoff table and a Sub Decision Payoff
Table. Use Minimax Regret as an evaluation criterion to evaluate
alternatives.
Future Demand
Alternatives
Low
Moderate
High
Small Facility
111
81
91
Medium Facility
51
130
102
Large Facility
-12
124
126
Alternatives
Worst Regrets
Small Facility
?
Medium Facility
?
Large Facility
?
a) The worst regrets for alternative Small Facility is
The worst regrets for alternative Medium Facility
is
c) The worst regrets for...

Consider the following Profit Payoff Table:
State of Nature
Decision Alternative
S1
S2
S3
d1
250
100
25
d2
100
100
75
The probabilities for the states of nature are
P(S1) = 0.65,
P(S2) = 0.15, and
P(S3) = 0.20.
What is the optimal decision strategy if perfect information
were available?
What is the expected value for the decision strategy developed
in part (a)?
Using the expected value approach, what is the recommended
decision without perfect information? What is its...

QUESTION 28
You would like to invest in one of the three available
investment plans: money market, bonds, or stocks. The payoffs
(profits) of each plan under two possible future economic
conditions, PE (poor economy) and GE (good economy), are shown
below. The probability of the occurrence of PE is 0.2.
PE GE
Money Market 1000 2000
Bonds 3000 2500
Stocks 2000 4500
The expected value of perfect information (EVPI) is
a.
150
b.
200
c.
320
d.
450
e....

Q5. The following is a payoff table giving
profits for various situations.
State of Nature
Alternatives
A
B
C
Alternative 1
120
140
120
Alternative 2
200
100
50
Alternative 3
100
120
180
Do Nothing
0
0
0
What decision should be made based on the minimax regret
criterion?
Alternative 1
Alternative 2
Alternative 3
Do Nothing

Use the following information to answer questions
1-5.
A vendor at a baseball stadium must decide whether to sell ice
cream or soft drinks at today’s game. The vendor believes that that
the profit will depend on the weather. The payoff table is as
follows.
Decision Alternatives
States of Nature
Cool Weather (s1)
Warm Weather (s2)
Sell soft drinks (d1)
$50
$60
Sell ice cream (d2)
$30
$90
On the basis of her past experience at this time of year...

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