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Unformatted text preview: C. expected value of sampling information
D. expected net gain of sampling AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 2
Topic: Posterior Analysis 62. The _____________ criterion is best used when a large number of similar decisions will
be made.
A. expected monetary value
B. expected value of perfect information
C. expected value of sample information
D. expected net gain of sampling AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 1
Topic: Decision Theory 11933 Chapter 01  An Introduction to Business Statistics 63. The _________ curve of an individual decision maker is a plot of the decisionmaker's
utilities versus the profits.
A. Utility
B. Maximax
C. Posterior
D. Preposterior AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 3
Topic: Utility Theory 64. In utility theory, a(n) __________________ decision maker is an individual who will
choose the decision alternative having the highest expected profit.
A. high risk
B. low risk
C. risk neutral
D. posterior AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 3
Topic: Utility Theory 11934 Chapter 01  An Introduction to Business Statistics
Essay Questions 65. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. Determine the best alternative (course of action) for the EKA manufacturing company using
the maximax criterion.
strategy 2
(Max. payoff for alternative 2 = 120) > (Max. payoff for alternative 1 = 110), thus choose
strategy 2. AACSB: Analytic Skills
Bloom's: Application
Difficulty: Medium
Learning Objective: 1
Topic: Decision Theory 11935 Chapter 01  An Introduction to Business Statistics 66. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. Determine the best alternative (course of action) for the EKA manufacturing company using
the maximin criterion.
strategy 1
(Min. payoff for alternative 1 = 70) > (Min. payoff for alternative 1 = 50), thus choose
strategy 1. AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 1
Topic: Decision Theory 11936 Chapter 01  An Introduction to Business Statistics 67. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. Find the expected monetary value for each of the alternatives and determine the best
alternative (course of action) for the EKA manufacturing company using the expected
monetary value criterion.
strategy 2
(EMV)1 = (.3)(110) + (.6)(80) + (.1)(70) = 88
(EMV)2 = (.3)(60) + (.6)(120) + (.1)(50) = 95
95 > 88, therefore choose strategy 2. AACSB: Analytic Skills
Bloom's: Application
Difficulty: Medium
Learning Objective: 1
Topic: Decision Theory 11937 Chapter 01  An Introduction to Business Statistics 68. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. What is the maximum amount that the company would be willing to pay for perfect
information?
EVPI = 6
(EMV)1 = (.3)(110) + (.6)(80) + (.1)(70) = 88
(EMV)2 = (.3)(60) + (.6)(120) + (.1)(50) = 95
Max EMV = 95
Expected payoff under certainty = (.3)(110) + (.6)(120) + (.1)(70) = 112
EVPI = 112  95 = 17 AACSB: Analytic Skills
Bloom's: Application
Difficulty: Medium
Learning Objective: 1
Topic: Decision Theory 11938 Chapter 01  An Introduction to Business Statistics 69. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. The management believes that...
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 Winter '14

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