This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Note that, X 1 and X 2 are random variables (i.e. their values are uncertain) and c 1 and c 2 are constant values. From the text, we conclude: TC = c 1 X 1 + c 2 X 2 (A LINEAR RELATIONSHIP!) Conclusion: TC is a random variable (its value is uncertain). EMGT 269 Elements of Problem Solving and Decision Making Solution by Instructor: Dr. J. Rene van Dorp A. Because of the Linear Relationship we have: E[TC] = E[c 1 X 1 + c 2 X 2 ] = c 1 E[X 1 ]+ c 2 E[X 2 ] From the text we have: c 1 = $200, c 2 = 165, E[X 1 ] = 5 and E[X 2 ] = 3.6. Hence: E[TC] = $200 x 5 + $165 x 3.6 = $ 1594 B. With an assumption of independence between X 1 and X 2 are we have: Var[TC] = Var[c 1 X 1 + c 2 X 2 ] = (c 1 ) 2 Var[X 1 ]+ (c 2 ) 2 Var[X 2 ] From the text we have: c 1 = $200, c 2 = 165, Var[X 1 ] = 6 and E[X 2 ] = 7. Hence: Var[TC] = ($200) 2 x 6 + (165) 2 x 7 = ($) 2 430575 Standard Deviation TC: 430575 = $656.18 IS THIS ASSUMPTION OF INDEPENDENCE REASONABLE?...
View Full
Document
 Spring '11
 John
 Decision Making

Click to edit the document details