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hwmoda-solutions

# hwmoda-solutions - Module A Internet Homework Problems A.24...

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Module A Internet Homework Problems A.24 Given the following conditional value table, determine the appropriate decision under uncertainty using a) maximax: Large Plant b) maximin: Overtime c) equally likely: Small Plant States of Nature V ERY F AVORABLE A VERAGE U NFAVORABLE A LTERNATIVES M ARKET M ARKET M ARKET Large plant \$275,000 \$100,000 -\$150,000 Small plant \$200,000 \$ 60,000 -\$ 10,000 Overtime \$100,000 \$ 40,000 -\$ 1,000 Do nothing \$ 0 \$ 0 \$ 0 A.25 The following payoff table provides profits based on various possible decision alternatives and various levels of demand: Demand L OW M EDIUM H IGH Alternative 1 80 120 140 Alternative 2 90 90 90 A LTERNATIVE 350 70 150 The probability of low demand is 0.4, whereas the probability of medium and high demand is each 0.3. a) What is the highest possible expected monetary value? 110 for Alt 1. b) Calculate the expected value of perfect information for this situation. EVPI = 0.4 × 90 + 0.3 × 120+0.3 × 150 – 110 = 7 A.26 Given the following conditional value table, determine the appropriate decision assuming that each state of nature has an equal likelihood of occurring: States of Nature V ERY F AVORABLE A VERAGE U NFAVORABLE A LTERNATIVES M ARKET M ARKET M ARKET Large plant \$275,000 \$100,000 - \$150,000 Small plant \$200,000 \$ 60,000 -\$ 10,000 Overtime \$100,000 \$ 40,000 -\$ 1,000 Do nothing \$ 0 \$ 0 \$ 0 Decision: Small Plant – it has the highest EMV.

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hwmoda-solutions - Module A Internet Homework Problems A.24...

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