Exam 17: Decision Making

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 17-2, what is the EOL for Action A?

TABLE 17-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Table 17-5, what is the optimal action using the coefficient of variation?

TABLE 17-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 $\text {where:}$$\quad$$\quad$ $\text {S1 is state of nature 1 }$$\quad$$\text {A1 is action alternative 1}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\text {S2 is state of nature 2}$$\quad$$\text { A2is action alternative 2}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {A3 is action alternative3 }$ -Referring to Table 17-1, if the probability of S1 is 0.5, what is the coefficient of variation for A2?

Blossom's Flowers purchases roses for sale for Valentine's Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine's Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100, 200, or 400 dozen roses. If the probability of selling 100 dozen roses is 0.2 and 200 dozen roses is 0.5, what is the probability of selling 400 dozen roses?

TABLE 17-4 A stock portfolio has the following returns under the market conditions listed below. Market Condition Probability Return Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Table 17-4, what is the EMV?

For a potential investment of $5,000, a portfolio has an EMV of $1,000 and a standard deviation of $100. What is the return to risk ratio?

In a local cellular phone area, company A accounts for 60% of the cellular phone market, while company B accounts for the remaining 40% of the market. Of the cellular calls made with company A, 1% of the calls will have some sort of interference, while 2% of the cellular calls with company B will have interference. If a cellular call is selected at random and has interference, what is the probability that it was with company A?

Blossom's Flowers purchases roses for sale for Valentine's Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine's Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100, 200, or 400 dozen roses. Given 0.2, 0.4, and 0.4 are the probabilities for the sale of 100, 200, or 400 dozen roses, respectively, what is the EOL for buying 200 dozen roses?

TABLE 17-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 $\text {where:}$$\quad$$\quad$ $\text {S1 is state of nature 1 }$$\quad$$\text {A1 is action alternative 1}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\text {S2 is state of nature 2}$$\quad$$\text { A2is action alternative 2}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {A3 is action alternative3 }$ -Referring to Table 17-1, if the probability of S1 is 0.5, what is the expected opportunity loss (EOL) for A1?

The risk- _______ curve shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for increasing dollar amounts.

TABLE 17-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 $\text {where:}$$\quad$$\quad$ $\text {S1 is state of nature 1 }$$\quad$$\text {A1 is action alternative 1}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\text {S2 is state of nature 2}$$\quad$$\text { A2is action alternative 2}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {A3 is action alternative3 }$ -Referring to Table 17-1, if the probability of S1 is 0.5, what is the return to risk ratio for A3?

TABLE 17-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 $\text {where:}$$\quad$$\quad$ $\text {S1 is state of nature 1 }$$\quad$$\text {A1 is action alternative 1}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\text {S2 is state of nature 2}$$\quad$$\text { A2is action alternative 2}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {A3 is action alternative3 }$ -Referring to Table 17-1, if the probability of S1 is 0.2 and S2 is 0.8, what is the expected opportunity loss (EOL) for A1?

TABLE 17-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Table 17-5, what is the optimal action using the return to risk ratio?

TABLE 17-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 $\text {where:}$$\quad$$\quad$ $\text {S1 is state of nature 1 }$$\quad$$\text {A1 is action alternative 1}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\text {S2 is state of nature 2}$$\quad$$\text { A2is action alternative 2}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {A3 is action alternative3 }$ -Referring to Table 17-1, if the probability of S1 is 0.5, what is the expected monetary value (EMV ) for A2?

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year. If the expanded advertising campaign is successful, the company expects sales to increase by $1.6 million next year. If the advertising campaign fails, the company expects sales to increase by only $400,000 next year. If the advertising budget is not increased, the company expects sales to increase by $200,000. Identify the actions in this decision-making problem.

Blossom's Flowers purchases roses for sale for Valentine's Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine's Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100, 200, or 400 dozen roses. What is the number of alternatives for the payoff table?

TABLE 17-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Table 17-6, what is the return-to-risk ratio of spending 8 hours per week on average studying for the exam?

TABLE 17-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Table 17-5, what is the optimal action using maximax criterion?

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year. If the expanded advertising campaign is successful, the company expects sales to increase by $1.6 million next year. If the advertising campaign fails, the company expects sales to increase by only $400,000 next year. If the advertising budget is not increased, the company expects sales to increase by $200,000. Identify the outcomes in this decision-making problem.

TABLE 17-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Table 17-5, what is the EMV for Action A?