Question 1

In non-Bayesian decision making,the decision rule considers the respective probability of the states of nature.

Accepted Answer

A) True 
 B)False

Question 2

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 decision will be made using the minimax regret criterion?

Accepted Answer

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

Question 3

What are the differences among risk,uncertainty,and ignorance? Into which category of decision situation do most business decisions fall?

Accepted Answer

Risk is the condition when all the possi

Question 4

Competitor's Price
ABC Industries is about to launch a new product and must decide to set the price of the product at either high,medium,or low.The annual payoff for ABC will depend on the price set on a competing product that will be introduced in the near future.The table below shows the annual payout for each combination of prices.
Competitor's Price
 $$\begin{array} { | l | c | c | c | } 
\hline \text { AEC Price } & \text { High } & \text { Medium } & \text { Law } \
\hline \text { High } & \$ 60,000 & \$ 25,000 & - \$ 20,000 \
\hline \text { Medium } & \$ 35,000 & \$ 46,000 & - \$ 4,000 \
\hline \text { Lan } & \$ 18,000 & \$ 12,000 & \$ 8,000 \
\hline
\end{array}$$
-What price should ABC choose using the maximax criterion?

Accepted Answer

\[\begin{array} { | c c c c c c } 
\text

Question 5

Which of the following would not be considered a state of nature for a business firm?

Accepted Answer

A)  Federal Reserve regulations. 
B)  Food and Drug Administration regulations. 
C)  The number of employees to hire. 
D)  Minimum wage regulations. 
E)  What other firms charge for price. 
A)  Federal Reserve regulations. 
B)  Food and Drug Administration regulations. 
C)  The number of employees to hire. 
D)  Minimum wage regulations. 
E)  What other firms charge for price.

Question 6

Which of the following would be considered a state of nature for a business firm?

Accepted Answer

A)  Incentive programs for sales staff 
B)  Inventory levels 
C)  Salaries for employees 
D)  Site for new plant 
E)  Worker safety laws 
A)  Incentive programs for sales staff 
B)  Inventory levels 
C)  Salaries for employees 
D)  Site for new plant 
E)  Worker safety laws

Question 7

Define payoff table.

Accepted Answer

The payoff table is a table in which the

Question 8

Tee shirts
Tee Shirts Unlimited is providing shirts for an upcoming sports tournament.They assume demand will be either 2000,3000,4000,or 5000 shirts and they need to decide whether to produce 2000,3000,4000,or 5000 shirts.The payoff for each production/demand combination is shown in the table below.
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { PAYOFFE } & & \text { Demand } & & \
\hline \text { Altematives } & \mathbf { 2 0 0 0 } & \mathbf { 3 0 0 0 } & \mathbf { 4 0 0 0 } & \mathbf { 5 0 0 0 } \
\hline \mathbf { 2 0 0 0 } & \$ 10,000 & \$ 10,000 & \$ 10,000 & \$ 10,000 \
\hline \mathbf { 3 0 0 0 } & \$ \mathbf { 3 , 0 0 0 } & \$ 15,000 & \$ 15,000 & \$ 15,000 \
\hline \mathbf { 4 0 0 0 } & - \$ 4,000 & \$ \mathbf { 8 , 0 0 0 } & \$ 20,000 & \$ 20,000 \
\hline \mathbf { 5 0 0 0 } & - \$ 11,000 & \$ 1,000 & \$ 13,000 & \$ 25,000 \
\hline
\end{array}$$
-How many shirts should be produced using the minimax regret criterion?

Accepted Answer

\[\begin{array} { | c c c c c c c | } 
\

Question 9

The maximax criterion specifies that we select the decision alternative having the highest maximum payoff.

Accepted Answer

A) True 
 B)False

Question 10

Economy
An investor has constructed the following payoff table for his profit in thousands of dollars. $$\begin{array}{l}
\text { The state of the economy will be }\
\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Invest in } \
\text { company }
\end{array} & \begin{array} { c } 
\text { Weak } \
\mathbf { ( 0 . 2 ) }
\end{array} & \begin{array} { c } 
\text { Moderate } \
\mathbf { ( 0 . 4 ) }
\end{array} & \begin{array} { c } 
\text { Strong } \
\mathbf { ( 0 . 4 ) }
\end{array} \
\hline \mathrm { A } & - \$ 45 & \$ 35 & \$ 65 \
\mathrm {~B} & - \$ 25 & \$ 25 & \$ 50 \
\mathrm { C } & \$ 29 & \$ 33 & \$ 35 \
\hline
\end{array}
\end{array}$$
-Construct the regret matrix.

Accepted Answer

\[\begin{array}{l}
\text { The state of

Question 11

In hypothesis testing,uncertainty is reflected in Type I but not Type II error.

Accepted Answer

A) True 
 B)False

Question 12

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...

Question 13

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 14

Tee shirts
Tee Shirts Unlimited is providing shirts for an upcoming sports tournament.They assume demand will be either 2000,3000,4000,or 5000 shirts and they need to decide whether to produce 2000,3000,4000,or 5000 shirts.The payoff for each production/demand combination is shown in the table below.
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { PAYOFFE } & & \text { Demand } & & \
\hline \text { Altematives } & \mathbf { 2 0 0 0 } & \mathbf { 3 0 0 0 } & \mathbf { 4 0 0 0 } & \mathbf { 5 0 0 0 } \
\hline \mathbf { 2 0 0 0 } & \$ 10,000 & \$ 10,000 & \$ 10,000 & \$ 10,000 \
\hline \mathbf { 3 0 0 0 } & \$ \mathbf { 3 , 0 0 0 } & \$ 15,000 & \$ 15,000 & \$ 15,000 \
\hline \mathbf { 4 0 0 0 } & - \$ 4,000 & \$ \mathbf { 8 , 0 0 0 } & \$ 20,000 & \$ 20,000 \
\hline \mathbf { 5 0 0 0 } & - \$ 11,000 & \$ 1,000 & \$ 13,000 & \$ 25,000 \
\hline
\end{array}$$
-How many shirts should be produced using the maximin criterion?

Accepted Answer

Produce 20

Question 15

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.Which design should be selected in order to maximize the firm's expected profit?

Accepted Answer

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

Question 16

Bayesian decision making takes into account the probabilities for the respective states of nature.

Accepted Answer

A) True 
 B)False

Question 17

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.
Develop a payoff table for this decision situation.

Accepted Answer

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

Question 18

With the probabilities for the three market conditions estimated as 0.1,0.6,and 0.3,respectively,what is the expected opportunity loss (EOL)associated with each of the three decision alternatives?
Design A: ____________________ million
Design B: ____________________ million
Design C: ____________________ million

Accepted Answer

The answer of With the probabilities for the three market...

Question 19

A homeowner takes out an insurance policy to try to insure against every contingency to avoid catastrophic losses.Which of the following decision making criteria does this typify?

Accepted Answer

A)  Maximum 
B)  Maximax 
C)  Minimax 
D)  Minimax regret 
E)  Maximum expected payoff 
A)  Maximum 
B)  Maximax 
C)  Minimax 
D)  Minimax regret 
E)  Maximum expected payoff

Question 20

Competitor's Price
ABC Industries is about to launch a new product and must decide to set the price of the product at either high,medium,or low.The annual payoff for ABC will depend on the price set on a competing product that will be introduced in the near future.The table below shows the annual payout for each combination of prices.
Competitor's Price
 $$\begin{array} { | l | c | c | c | } 
\hline \text { AEC Price } & \text { High } & \text { Medium } & \text { Law } \
\hline \text { High } & \$ 60,000 & \$ 25,000 & - \$ 20,000 \
\hline \text { Medium } & \$ 35,000 & \$ 46,000 & - \$ 4,000 \
\hline \text { Lan } & \$ 18,000 & \$ 12,000 & \$ 8,000 \
\hline
\end{array}$$
-What price should ABC choose using the minimax regret criterion?

Accepted Answer

\[\begin{array} { c c c c c c } 
\text {

In non-Bayesian decision making,the decision rule considers the respective probability of the states of nature.

What are the differences among risk,uncertainty,and ignorance? Into which category of decision situation do most business decisions fall?

Which of the following would not be considered a state of nature for a business firm?

Which of the following would be considered a state of nature for a business firm?

Define payoff table.

The maximax criterion specifies that we select the decision alternative having the highest maximum payoff.

Economy An investor has constructed the following payoff table for his profit in thousands of dollars. The state of the economy will be Invest in company Weak Moderate Strong -\ 45 \ 35 \ 65 -\ 25 \ 25 \ 50 \ 29 \ 33 \ 35 -Construct the regret matrix.

In hypothesis testing,uncertainty is reflected in Type I but not Type II error.

Bayesian decision making takes into account the probabilities for the respective states of nature.

With the probabilities for the three market conditions estimated as 0.1,0.6,and 0.3,respectively,what is the expected opportunity loss (EOL)associated with each of the three decision alternatives? Design A: million Design B: million Design C: million

A homeowner takes out an insurance policy to try to insure against every contingency to avoid catastrophic losses.Which of the following decision making criteria does this typify?

A Preview of Business Statistics

Visual Description of Data

Statistical Description of Data

Data Collection and Sampling Methods

Probability: Review of Basic Concepts

Discrete Probability Distributions

Continuous Probability Distributions

Sampling Distributions

Estimation From Sample Data

Hypothesis Tests Involving a Sample Mean or Proportion

Hypothesis Tests Involving Two Sample Means

Analysis of Variance Tests

Chi-Square Applications

Nonparametric Methods

Simple Linear Regression and Correlation

Multiple Regression and Correlation

Model Building

Models for Time Series and Forecasting

Total Quality Management

Filters

Exam 19: Decision Theory

In non-Bayesian decision making,the decision rule considers the respective probability of the states of nature.

What are the differences among risk,uncertainty,and ignorance? Into which category of decision situation do most business decisions fall?

Which of the following would not be considered a state of nature for a business firm?

Which of the following would be considered a state of nature for a business firm?

Define payoff table.

The maximax criterion specifies that we select the decision alternative having the highest maximum payoff.

Economy An investor has constructed the following payoff table for his profit in thousands of dollars. The state of the economy will be Invest in company Weak Moderate Strong -\ 45 \ 35 \ 65 -\ 25 \ 25 \ 50 \ 29 \ 33 \ 35 -Construct the regret matrix.

In hypothesis testing,uncertainty is reflected in Type I but not Type II error.

Bayesian decision making takes into account the probabilities for the respective states of nature.

A homeowner takes out an insurance policy to try to insure against every contingency to avoid catastrophic losses.Which of the following decision making criteria does this typify?

A Preview of Business Statistics

Visual Description of Data

Statistical Description of Data

Data Collection and Sampling Methods

Probability: Review of Basic Concepts

Discrete Probability Distributions

Continuous Probability Distributions

Sampling Distributions

Estimation From Sample Data

Hypothesis Tests Involving a Sample Mean or Proportion

Hypothesis Tests Involving Two Sample Means

Analysis of Variance Tests

Chi-Square Applications

Nonparametric Methods

Simple Linear Regression and Correlation

Multiple Regression and Correlation

Model Building

Models for Time Series and Forecasting

Total Quality Management

Filters