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Unformatted text preview: e criterion is best used when a large number of similar decisions will be made. True False 14. When we use the expected monetary value criterion, the expected payoff equals the actual payoff that will be realized. True False 1-1870 Chapter 01 - An Introduction to Business Statistics 15. 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 best alternative (course of action) for the EKA manufacturing company using the maximax criterion is alternative 1. True False 16. In utility analysis, a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk seeking decision maker. True False Multiple Choice Questions 17. Maximin is a criterion used when making decisions under _____________. A. Uncertainty B. Certainty C. Risk D. Alternatives 18. If the decision maker has no knowledge about the likelihood of any of the states of nature occurring, then it can be stated that the decision maker is operating in an environment of: A. Certainty B. Uncertainty C. Risk D. Optimism 1-1871 Chapter 01 - An Introduction to Business Statistics 19. When making a decision in an environment of ________________, the decision maker knows which of the states of nature will actually occur. A. Certainty B. Uncertainty C. Risk D. Optimism 20. When making a decision in an environment of ________________, the likelihood of each state of nature can be estimated. A. Certainty B. Uncertainty C. Risk D. Alternatives 21. The _______________________ is the difference between the expected payoff that would have been realized had the best alternative action been selected if we know which state of nature has occurred and the expected payoff under risk. A. Maximax criterion B. Maximin criterion C. Expected utility D. Expected value of perfect information E. Expected value of sample information 22. The _______________________ is the difference between the expected payoff of sampling and the expected payoff based on expected monetary criterion and prior probabilities. A. Maximax criterion B. Maximin criterion C. Expected utility D. Expected value of perfect information E. Expected value of sample information 1-1872 Chapter 01 - An Introduction to Business Statistics 23. The expected value criterion is used for decision-making under __________________. A. Certainty B. Uncertainty C. Risk D. Alternatives 24. Maximax is a criterion used when making decisions under __________________. A. Certainty B. Uncertainty C. Risk D. Alternatives 25. A person's utility is determined by the preferences he/she exhibits for decision choices involving __________. A. Certainty B. Uncertainty C. Risk D. Bayes' Theorem 26. The _____________________ criterion is attractive to those decision-makers who exhibit a neutral approach towards decision choices involving risk. A. Expected utility B. Expected value C. Maximin D. Maximax E. Decision theory 27. When we assess the worth of sample information in a decision making problem, we are performing a: A. Prior analysis B. Preposterior analysis C. Posterior analysis D. Payoff analysis E. Utility analysis 1-1873 Chapter 01 - An Introduction to Business Statistics 28. The expected net gain of sampling equals the expected ______________ minus the cost of sampling. A. payoff of sampling B. payoff of no sampling C. value of Sample Information D. value of Perfect Information E. utility 29. 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 best alternative (course of action) for the EKA manufacturing company using the maximin criterion is strategy __ and the best possible payoff is _____. A. 1, $50,000 B. 2, $120,000 C. 1, $100,000 D. 2, $70,000 E. 2, $80,000 1-1874 Chapter 01 - An Introduction to Business Statistics 30. 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 (S1) represent the levels of demand for the company products. S1, S2 and S3 characterize high, medium, and low demand with probabilities of .3, .6 and .1 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. A. EMV1 =...
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