Decision theory_bb

Decision theory_bb - DECISION MAKING 1 A tabular...

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DECISION MAKING 1. A tabular presentation that shows the outcome for each decision alternative under the various states of nature is called: a) a payback period matrix. b) a decision matrix. c) a decision tree. d) a payoff table. 2. The difference between expected payoff under certainty and expected value of the best act without certainty is the: a) expected monetary value. b) expected net present value. c) expected value of perfect information. d) expected rate of return. TABLE 16-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A 1 A 2 A 3 1 12 – 2 8 2 4 10 5 where: S 1 is state of nature 1 A 1 is action alternative 1 S 2 is state of nature 2 A 2 is action alternative 2 A 3 is action alternative 3 3. Referring to Table 16-1, if the probability of S 1 is 0.2 and S 2 is 0.8, then the expected monetary value of A 1 is a) 2.4. b) 5.6. c) 8. d) 16. 4. Referring to Table 16-1, if the probability of S 1 is 0.5, then the expected monetary value ( EMV ) for A 1 is a) 3. b) 4. c) 6.5. d) 8.
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4 Decision Making 5. Referring to Table 16-1, if the probability of S 1 is 0.5, then the expected monetary value ( EMV ) for A 2 is a) 3. b) 4. c) 6.5. d) 8. 6. Referring to Table 16-1, if the probability of S 1 is 0.5, what is the optimal alternative using EMV? a) A 1 b) A 2 c) A 3 d) It cannot be determined. 7. Referring to Table 16-1, if the probability of S 1 is 0.5, then the EVPI for the payoff table is a) – 3. b) 3. c) 8. d) 11. 8. Blossom’s Flowers purchases roses for sale for Valentine’s Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine’s Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine’s Day: 100, 200, or 400 dozen roses. The payoff for buying 200 dozen roses and selling 100 dozen roses at the full price is a) $2,000. b)
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This note was uploaded on 10/05/2010 for the course BUS 45730 taught by Professor Ravi during the Fall '08 term at Carnegie Mellon.

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Decision theory_bb - DECISION MAKING 1 A tabular...

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