Exam 19: Decision Making

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. The number of states of nature for the payoff table is

SCENARIO 19-6 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 mean amount of time he needed to study every week 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 Scenario 19-6, the optimal strategy using the maximax criterion is to study 16 hours per week on average for the exam.

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\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 Scenario 19-5, what is the optimal action using EMV?

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, then the EMV for buying 200 dozen roses is

SCENARIO 19-1 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 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, if the probability of S1 is 0.5, then the expected opportunity loss (EOL) for A3 is

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\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 Scenario 19-5, what is the opportunity loss for Action A with Event 2?

SCENARIO 19-4 A stock portfolio has the following returns under the market conditions listed below. Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Scenario 19-4, what is the standard deviation?

The curve for the will show a rapid increase in utility for initial amounts of money followed by a gradual leveling off for increasing dollar amounts.

SCENARIO 19-3 The following information is from 2 investment opportunities. A B Expected monetary value \ 900 \ 600 Standard deviation 100 50 -Referring to Scenario 19-3, what is the return to risk ratio for Investment B?

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\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 Scenario 19-5, what is the EMV for Action B?

SCENARIO 19-1 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 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, if the probability of S1 is 0.2, what is the optimal alternative using EOL?

SCENARIO 19-2 The following payoff matrix is given in dollars. $\quad$$\quad$$\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 Scenario 19-2, the EVPI is

SCENARIO 19-4 A stock portfolio has the following returns under the market conditions listed below. Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Scenario 19-4, what is the EMV?

A medical doctor is involved in a $1 million malpractice suit. He can either settle out of court for $250,000 or go to court. If he goes to court and loses, he must pay $825,000 plus $175,000 in court Costs. If he wins in court the plaintiffs pay the court costs. Identify the states of nature of this Decision-making problem.

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, the probability that it will not have Interference is

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, then the EOL for buying 200 dozen roses is

SCENARIO 19-1 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 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, if the probability of S1 is 0.5, then the coefficient of variation for A1 is

SCENARIO 19-6 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 mean amount of time he needed to study every week 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 Scenario 19-6, how many possible courses of action are there?

SCENARIO 19-1 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 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, what is the best action using the maximax criterion?

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?