MGT355 Practice.One.2015

# MGT355 Practice.One.2015 - MGT 355 Practice Exam(1 2015...

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MGT 355 - Practice Exam (1) 2015 Make-up exams are not allowed , except in cases of emergency (You need to provide supporting documents. Also, the exam format will be different – e.g. using the Solver to find solutions for Linear Programming problems in your instructor’s office, etc... ) Making Decisions _____1. Lakewood Fashions must decide how many lots of assorted ski wear to order for its three stores. Information on pricing, sales, and inventory costs has led to the following payoff table, in thousands. The goal is to identify the right option that maximizes the total payoff. Demand Order Low Medium High 1 lot 12 15 15 2 lots 9 25 35 3 lots 6 35 60 What decision should be made by the optimist? a) 1 lot, b) 2 lots, c) 3 lots, d) none of the above. Hint: Demand Order Low Medium High Maxi max 1 lot 12 15 15 2 lots 9 25 35 3 lots 6 35 60 ____2.A payoff table lists the monetary values (profit or loss, i.e. what you want) for each possible _____and each possible _____. a. mean and standard deviation b. decision and utility c. decision alternative (i.e. what you can do) and chance event (i.e. what you know) d. risk profile and outcome e. None of these options ____3. A decision maker has developed the following decision tree. The goal is to identify the strategy that maximizes the expected total payoff. What is your advice to the decision maker? a) Choose N, b) Choose P, c) Choose U, d) Choose V, e) none of the above. 1

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_____4. Suppose that a decision maker faced with three decision alternatives and three chance events (also known as state of nature) develops the following cost table (in 1000s): Options Chance Event High Demand Medium Demand Low Demand Own Staff 650 650 600 Outside Vendor 900 600 300 Combination 800 650 500 If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost? a) own staff, b) outside vendor, c) combination. DIY: Construct a risk profile for the optimal decision. (1): C (2): C (3): D (4): B (Hire an outside vendor with an expected cost of \$570,000) (EV(own staff)=0.2*650+0.5*650+0.3*600=635) (EV(outside vendor)=0.2*900+0.5*600+0.3*300=570) (EV(combination)=0.2*800+0.5*650+0.3*500=635) Making Decisions Mr. Kodger, your next door neighbor who has an older style house with an oil heating system, is concerned with the recent prediction of a combination of skyrocketing oil prices and a cold, snowy winter. In August, the local oil company wrote a letter to their entire customer base detailing an optional pre-determined price plan from which a customer can essentially lock-in the purchase price of oil now that they will use this winter. The oil company has offered this plan with the lock-in price at just \$0.15 per gallon over the current price of \$2.85 per gallon. Knowing that the amount of oil he will use this winter depends on the severity of the weather, Mr. Kodger is trying to decide if he should take advantage of this lock-in price plan. The projected winter oil prices and their corresponding probabilities, as well as a probability distribution for the type of winter weather predicted are provided.

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