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HW2 - MS&E 252 Decision Analysis I Handout#5 Homework...

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MS&E 252 Handout #5 Decision Analysis I 10/5/2007 Page 1 of 7 HW #2 Homework Assignment #2 Due on Thursday Oct. 11 th 11:59 pm Homework Submission Logistics: You can access the MSE 252 homework submission site from Coursework at http://coursework.stanford.edu . Click on “submit homework” on the left-hand menu. If coursework is down, please access the site from: http://da1.stanford.edu/homework/ . Note: The server gets very busy between 11:30 and 11:59 pm on Thursdays as it experiences a glut of requests from students. Submit early!! In this assignment you are required to turn in the probabilistic section only. Again the "Food For Thought" section is optional but will help you think in depth about the concepts covered and will help with your grade on participation. As mentioned in the course guide, we will expect full knowledge of all sections on this assignment. Assigned Reading: 1) The Foundation of Decision Analysis: start reading chapter 1 Definitions: From the class lectures, explain the following concepts: Decision basis Sunk cost Personal Indifferent Buying Price (PIBP) Personal Indifferent Selling Price (PISP) Cycle of Ownership Market buying and selling price Value in use Value in exchange Value of Clairvoyance Probabilistic Questions: (Submit solutions on Coursework) 1) Lauren has just bought a brand new bike for $149. However, she quickly realizes that it might not prove as useful as she had initially thought, and she therefore revises her PISP for the bike down to $90. Her friend Jenny offers to buy the bike from Lauren for a given price p. Lauren agrees to the transaction. Assuming that both Lauren and Jenny made their decisions according to the principles taught in class, which of the following statements MUST be true? I. The amount p offered by Jenny in exchange for the bike was greater than or equal to $149. II. Jenny’s PIBP for Lauren’s bike was greater than or equal to $90.
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MS&E 252 Handout #5 Decision Analysis I 10/5/2007 Page 2 of 7 HW #2 a) Neither I nor II b) I only c) II only d) Both I and II 2) Susan just bought a new tank top for $40. How many of the following statements must be true if Susan follows the principles taught in class? I. Her PIBP for the tank top was less than or equal to $40. II. Her PIBP might have been different if she had heard that the tank top was out of fashion this year. III. If the store had offered two identical tops for $80, she would have been happy to take that offer.
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