QM Spring2017 - TUTORIAL - Additional Problems - Chapter 3 Decision Table

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Vietnam International University (VNU) HCMC INTERNATIONAL UNIVERSITY (IU) Semester 02, Academic Year 2016 - 2017 ------o0o------ Page 1 of 3 Course: Quantitative Methods for Business (BA168IU) | Lecturer: Mr. Nguyen Minh Tuan Paper Title: TUTORIAL MATERIAL 02 (Chapter 03: Decision Analysis | Part 1: Decision Table) TUTORIAL MATERIAL 02 Additional Problems (Chapter 03: Decision Analysis | Part 01: Decision Table) PART I: DECISION TABLE PROBLEM 1: Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table: SIZE OF FIRST STATION GOOD MARKET ($) FAIR MARKET ($) POOR MARKET ($) Small 50,000 20,000 10,000 Medium 80,000 30,000 20,000 Large 100,000 30,000 40,000 Very large 300,000 25,000 160,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000. (a) What is the maximax decision? (b) What is the maximin decision? (c) What is the equally likely decision? (d) What is the criterion of realism decision? Use an α value of 0.8. (e) What is the minimax regret decision? (f) Given that the probabilities of good, fair, and poor market are 0.3, 0.4, and 0.3, respectively, what is the best decision based on the EMV approach? (g) What is the maximum amount that should be paid for a perfect forecast of the economy? PROBLEM 2: Today’s Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components . Phyllis Weinberger, who is responsible for advising the president of Today’s Electronics on electronic manufacturing equipment, has developed the following table concerning a proposed facility: PROFIT ($) STRONG MARKET FAIR MARKET POOR MARKET Large facility 550,000 110,000 310,000 Medium-size facility 300,000 129,000 100,000 Small facility 200,000 100,000 32,000 No facility 0 0 (a) What is the maximax decision? (b) What is the maximin decision? (c) What is the equally likely decision? (d) What is the criterion of realism decision? Use an α value of 0.3. (e) What is the minimax regret decision? 0
Vietnam International University (VNU) HCMC INTERNATIONAL UNIVERSITY (IU)

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