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Ch15
Student: ___________________________________________________________________________
1.
A probability distribution
A. is a way of dealing with uncertainty.
B. lists all possible outcomes and the corresponding probabilities of occurrence.
C. shows only the most likely outcome in an uncertain situation.
D. both
a
and
b
E. both
a
and
c
2.
The variance of a probability distribution is used to measure risk because a higher variance is associated
with
A. a wider spread of values around the mean.
B. a more compact distribution.
C. a lower expected value.
D. both
a
and
b
E. all of the above
3.
Risk exists when
A. all possible outcomes are known but probabilities can't be assigned to the outcomes.
B. all possible outcomes are known and probabilities can be assigned to each.
C. all possible outcomes are known but only objective probabilities can be assigned to each.
D. future events can influence the payoffs but the decision maker has some control over their probabilities.
E.
c
and
d
4.
When a manager can list all outcomes and assign probabilities to each
A. uncertainty exists.
B. both risk and uncertainty exist.
C. risk exists.
D. the manager should use the minimax rule for making a decision.
E.
b
and
d
5.
Subjective probabilities are
A. determined from actual data on part experiences.
B. used in the presence of uncertainty.
C. almost never used from decision making.
D. are based on feelings or hunches.
E.
c
and
d
6.
Choosing the decision with the maximum possible payoff
A. is the maximax rule.
B. ignores possible bad outcomes.
C. is a guide for decision making under uncertainty.
D. all of the above
E. none of the above
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The maximin rule
A. ignores bad outcomes.
B. is used by optimistic managers.
C. minimizes the potential regret.
D.
a
and
c
E. none of the above
8.
Using the minimax regret rule the manager makes the decision
A. with the smallest worstpotential regret.
B. with the largest worstpotential regret.
C. knowing he will not regret it.
D. that has the highest expected value relative to the other decisions.
9.
In making decisions under risk
A. maximizing expected value is always the best rule.
B. mean variance analysis is always the best rule.
C. the coefficient of variation rule is always best.
D. maximizing expected value is most reliable for making repeated decisions with identical probabilities.
E. none of the above
The next 7 questions refer to the following:
A firm is considering two projects,
A
and
B
, with the following probability distributions for profit.
10. The expected value of project
A
(in $1,000s) is
A. $60
B. $65
C. $70
D. $75
E. $80
11. The variance of project
A
is
A. 7.07
B. 50
C. 440
D. 4,000
E. 380
12. What is the expected value of project
B
(in $1,000s)?
A. $60
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This note was uploaded on 01/08/2011 for the course MBA ECON taught by Professor Hamza during the Spring '10 term at Prince Sultan University.
 Spring '10
 HAMZA

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