Extra Problem 7 - Sensitivity Analysis - Solution Key

# Extra Problem 7 - Sensitivity Analysis - Solution Key -...

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Unformatted text preview: EMGT 269 – Elements of Problem Solving and Decision Making Instructor: Dr. J. Rene van Dorp 1 EXTRA PROBLEM 7: SENSITIVITY ANALYSIS Low (1-p-q) High (p) 10.3 Medium (q) 5 Final Court Decision Accept \$3 Billion Refuse Low (1-p-q) High (p) 10.3 Medium (q) 5 Final Court Decision 5 2 Max Result 3 Accept \$2 Billion Counteroffer \$5 Billion Texaco Accepts \$5 Billion (0.17) Texaco Refuses (0.50) Counteroffer Texaco Counter - offers \$3 Billion (0.33) EMGT 269 – Elements of Problem Solving and Decision Making Instructor: Dr. J. Rene van Dorp 2 A. Create a two-way sensitivity graph that shows optimal strategies for Liedtke for all possible values of p and q Strategy A = Accept \$2 billion. Strategy B = Counteroffer \$5 billion, then refuse if Texaco offers \$3 billion. Strategy C = Counteroffer \$5 billion, then accept if Texaco offers \$3 billion. EMV(A) = 2 EMV(B) = 0.17 (5) + 0.5 [ p 10.3 + q 5 + (1- p- q ) 0] + 0.33 [ p 10.3 + q 5 + (1- p- q ) 0] = 0.85 + 8.549 p + 4.15 q ....
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Extra Problem 7 - Sensitivity Analysis - Solution Key -...

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