Exam 17: Decision Making

TABLE 17-5 $\text { The following payoff table showsprofits associated witha set of } 2 \text { alternatives under } 3 \text { possible events. }$ $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ 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 opportunity loss for Action A with Event 1?

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 return to risk ratio for Action B?

TABLE 17-5 $\text { The following payoff table showsprofits associated witha set of } 2 \text { alternatives under } 3 \text { possible events. }$ $\quad$ $\quad$ $\quad$ $\quad$ $\text {Action }$ 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 17-6, what is the coefficient of variation of spending 8 hours per week on average studying for the exam?

A tabular presentation that shows the outcome for each decision alternative under the various states of nature is called

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,what is the opportunity loss for A3 when S2 occurs?

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 standard deviation for Action A?

The ______curve represents the expected monetary value approach.

For a potential investment of $5,000, a portfolio has an EMV of $1,000 and a standard deviation of $100. What is the coefficient of variation?

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, the optimal strategy using the expected opportunity loss criterion is to study 16 hours per week on average for the exam.

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, what is the opportunity loss for A2 when S1 occurs?

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, the optimal strategy using the coefficient of variation criterion is to study 8 hours per week on average for the exam.

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 optimal EMV for buying roses?

TABLE 17-2 The following payoff matrix is given in dollars. Action Event A B 1 400 700 2 200 500 -Referring to Table 17-2, what is the EVPI?

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 EMV for Action A?

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, what is the probability that it will not have interference?

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, the optimal strategy using the maximin criterion is to study 8 hours per week on average for the exam.

TABLE 17-3 The following information is from 2 investment opportunities. A B Expected monetary value \ 900 \ 600 Standard deviation 100 50 -Referring to Table 17-3, which investment has the optimal 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 A1?

TABLE 17-2 The following payoff matrix is given in dollars. Action Event A B 1 400 700 2 200 500 -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 opportunity loss for buying 400 dozen roses and selling 200 dozen roses at the full price?

TABLE 17-2 The following payoff matrix is given in dollars. $\quad$$\quad$$\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 coefficient of variation for Action A?