University of Cincinnati

BANA 2082

Quiz 15A

1)The company identified in Chapter 15, Analytics in Action, is

2. The Analytics in Action example in Chapter 15 concerned

3. Chapter 15 focuses on

4. An uncertain future event affecting the consequence associated with a decision is known as a

5. A(n)                         refers to the result obtained when a decision alternative is chosen and a chance event occurs.

6.                                  are possible outcomes for chance events that affect the consequences associated with a decision alternative.

7. No more than one state of nature can occur at a given time for a chance event. This indicates that the states of nature are defined such that they are

8. The states of nature are defined so that they are                      . This means that at least one state of nature must occur at a given time for a chance event.

9. An intersection or junction point of a decision tree is called a(n)

10. Lines showing the alternatives from decision nodes and the outcomes from chance nodes are called

11. The                             approach evaluates each decision alternative in terms of the best payoff that can occur.

12. Choosing a decision alternative that maximizes the minimum profit is a feature of the

                         approach.

Quiz 14 & 15

1. (All answers were generated using 1,000 trials and native Excel functionality.)

A project has four activities (A, B, C, and D) that must be performed sequentially. The probability distributions for the time required to complete each of the activities are as follows:

Construct a spreadsheet simulation model to estimate the average length of the project and the standard deviation of the project length. If required, round your answers to one decimal places.

What is the project length?

2. Consider Question 1, what is the standard deviation of the project length?

3. Consider Question 1, what is the estimated probability that the project will be completed in 35 weeks or less? Round your answer to two decimal places.

4. 
   Using the Table below, which is the recommended decision alternative using the conservative approach?

5. 
   Using the Table below, which is the recommended decision alternative using the optimistic approach?

6. The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:

If the decision maker knows nothing about the probabilities of the three states of nature, what is the recommended decision using the optimistic approach?

7. 
   The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:

If the decision maker knows nothing about the probabilities of the three states of nature, what is the recommended decision using the conservative approach?

8. The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:

If the decision maker knows nothing about the probabilities of the three states of nature, what is the recommended decision using the Minimax regret approach?

Quiz 15B

1. The amount of loss (lower profit or higher cost) from not making the best decision for each state of nature is known as

2. The minimax regret approach is

3. The weighted average of the payoffs for a chance node is known as the

4. New information obtained through research or experimentation that enables an updating or revision of the state-of-nature probabilities is known as

5.                          refer to the probabilities of the states of nature after revising the prior probabilities based on sample information.
6.                             is the study of the possible payoffs and probabilities associated with a decision alternative or a decision strategy in the face of uncertainty.

7. The study of how changes in the probability assessments for the states of nature or changes in the payoffs affect the recommended decision alternative is known as

8.              refers to the probability of one event, given the known outcome of a (possibly) related event.

9. Bayes’ theorem

Quiz 15C

1. Meega airlines decided to offer direct service from Akron to Clearwater Beach, Florida. Management must decide between full-price service using a company’s new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service on Clearwater Beach: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars).

The probabilities for the demand is P(High) = 0.3, P(Medium) = 0.5, and P(Low) = 0.2, respectively.

What is the optimal decision strategy if perfect information were available?

2. Consider Question 1, using the expected value approach, what is the recommended decision without perfect information?

3. Consider Question 1, what is the expected value for the decision strategy? (in thousands of dollars)
4. Consider Question 3, what is the EVwoPI? (in thousand of dollars)

5. Consider Questions 2 & 4, what is the expected value of perfect information? (in thousand of dollars)

6. Amy Lloyd is interested in leasing a new Honda and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36-month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow:

Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision, she believes it is reasonable to assume that she will drive 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Hepburn Honda lease will cost her 36($299) + $0.15(36,000 - 36,000) = $10,764 if she drives 12,000 miles per year, 36($299) +

$0.15(45,000 - 36,000) = $12,114 if she drives 15,000 miles per year, or 36($299) + $0.15(54,000

- 36,000) = $13,464 if she drives 18,000 miles per year.

Construct a payoff table for Amy's problem. If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the optimistic approach?

7. Amy Lloyd is interested in leasing a new Honda and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36-month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow:

Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision, she believes it is reasonable to assume that she will drive 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Hepburn Honda lease will cost her 36($299) + $0.15(36,000 - 36,000) = $10,764 if she drives 12,000 miles per year, 36($299) +

$0.15(45,000 - 36,000) = $12,114 if she drives 15,000 miles per year, or 36($299) + $0.15(54,000

- 36,000) = $13,464 if she drives 18,000 miles per year.

Construct a payoff table for Amy's problem. If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the pessimistic approach?

8. Amy Lloyd is interested in leasing a new Honda and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36-month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow:

Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision, she believes it is reasonable to assume that she will drive 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Hepburn Honda lease will cost her 36($299) + $0.15(36,000 - 36,000) = $10,764 if she drives 12,000 miles per year, 36($299) +

$0.15(45,000 - 36,000) = $12,114 if she drives 15,000 miles per year, or 36($299) + $0.15(54,000

- 36,000) = $13,464 if she drives 18,000 miles per year.

Construct a payoff table for Amy's problem. If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the minimax regret approach?

9. Amy Lloyd is interested in leasing a new Honda and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36-month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow:

Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision, she believes it is reasonable to assume that she will drive 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Hepburn Honda lease will cost her 36($299) + $0.15(36,000 - 36,000) = $10,764 if she drives 12,000 miles per year, 36($299) +

$0.15(45,000 - 36,000) = $12,114 if she drives 15,000 miles per year, or 36($299) + $0.15(54,000

- 36,000) = $13,464 if she drives 18,000 miles per year.

Construct a payoff table for Amy's problem. Suppose that the probabilities that Amy drives 12,000, 15,000, and 18,000 miles per year are 0.5, 0.4, and 0.1, respectively. Enter the lowest expected value rounded to the nearest dollar.

Quiz 15D

1.                          is a measure of the total worth of a consequence reflecting a decision maker’s attitude toward considerations such as profit, loss, and risk.
2. A               is a decision maker who would choose a guaranteed payoff over a lottery with a better expected payoff.
3. The utility function for money is a curve that depicts the relationship between
4. Exponential utility functions indicate that the decision maker is