Exam 16: Decision Making

Commodore is debating whether to produce the printed circuit boards for a new line of video cameras or outsource their production to a company that specializes in this operation.Strictly from a cost standpoint,production of the circuit boards would definitely be outsourced if:

A chance event that has an impact on the outcome of the choice but is not under the manager's control is called a(n)________.

The online courses were already beginning to pay off,Josie thought as she sketched out her first decision tree.All payoffs are in positive dollars and she was confident her estimates were accurate.Clearly,the best choice for her was to choose High Demand.

If a new alternative is added to a payoff table and the maximax criterion is applied again,the new decision must either remain with the original maximax alternative or the new alternative.

The break-even quantity is the volume at which the total revenue equals total cost.

Choosing the alternative that is the best weighted payoff using decision making under uncertainty would be:

Table A.2 Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods,referred to as methods A,B,C and D.Depending on the demand for the product,they forecast different levels of expenses for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low. -Using the information in Table A.2,which alternative is BEST in accordance with a decision criterion of Laplace?

An optimistic couple would opt for a(n)________ based on the information presented in Table A.1.

A single factory produces two different products during each half of the year with equivalent fixed cost;from January through June they produce Product A and from July through December they produce Product B.Product A costs twice as much to produce and is sold at twice the price of Product B.Derive an expression relating the break-even quantity of Product A to that of Product B.

Table A.3 Use the following to answer the questions below. In choosing between three new jobs,Joe MBA considers the potential payoffs over the next three years.The following table contains the payoffs,given the speed of promotion in each of the organizations.The probability of fast promotion is 0.6,and the probability of slow promotion is 0.4. -Use the information in Table A.3 and the expected-value rule.Which statement is TRUE?

In decision theory,the different courses of action that a decision maker can choose are called ________.

Use the following to answer the questions below. A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows: -Refer to the instruction above.What is the annual break-even quantity for choosing between the two suppliers?

The decision rule ________ is also referred to as the pessimist's criterion.

A preference matrix is a table that allows the manager to rate an alternative according to one performance criterion.

A marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55.What is the best choice with the payoffs shown in the tree?

Keith Monroe is deciding among four alternatives and fleshes out the decision tree shown below.He has developed excellent estimates of payoffs but admits he has no clue about the probabilities for the two states of nature.He wants to cover all of his bases,so he would like to calculate the probability of high demand for which each alternative is superior.Analyze this situation and make recommendations for him.He promises to cut you in for 30% of the profits if you can show him how to calculate the ranges.

Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding.They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000.Their marketing team feels that they can sustain an annual sales volume sufficient to require 35,000 welds.If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house?

A(n)________ is the difference between a given payoff and the best payoff for a given state of nature.

Use the following to answer the questions below. A proposal for implementing a new product line has an annual fixed cost of $60,000,variable cost of $35 per unit of output,and revenue (selling price)of $55 per unit of output. -Refer to the instruction above.What volume of output will be necessary for an annual profit of $60,000?

The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store.The demand will be weak,fair,or strong;probabilities are 0.25,0.30,and 0.45,respectively. If the company installs a small booth that sells only coffee,the associated payoffs are -$25,000;25,000;and $100,000 for weak,fair,and strong demand.If the company chooses an expanded facility that offers sandwiches and breakfast foods,it must build a kitchen and rent additional space.The payoffs for an expanded facility are -$200,000,-$25,000,and $500,000. a.Draw a decision tree for this problem. b.What should management do to achieve the highest expected payoff?