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# The company is considering increasing the value of

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Unformatted text preview: quality (S2), and 20% chance that the lot is good quality (S3). Assume the following payoff table is available. The values in the payoff table are in thousands of dollars. Based on historical data, if the lot is poor quality, 40% of the items are defective. If the lot is fair quality 22% of the items are defective. If the lot is good quality, 10% of the items are defective. The quality control manager inspects one unit from a recent shipment. After inspecting it he determines that the unit is defective. Based on this additional information, determine the revised (posterior) probabilities for each of the three states of nature. 1-1902 Chapter 01 - An Introduction to Business Statistics 86. The quality control manager for the NKA Inc. must decide whether to accept (alternative 1), further analyze (alternative 2), or reject (alternative 3) the shipment (lot) of incoming material. The historical data indicates that there is 30% chance that the lot is poor quality (S 1), 50% chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3). Assume the following payoff table is available. The values in the payoff table are in thousands of dollars. Based on historical data, if the lot is poor quality, 40% of the items are defective. If the lot is fair quality 22% of the items are defective. If the lot is good quality, 10% of the items are defective. The quality control manager inspects one unit from a recent shipment. After inspecting it, he determines that the unit is defective. If the inspected item is defective, determine which alternative action the quality control manager should choose. 1-1903 Chapter 01 - An Introduction to Business Statistics 87. The quality control manager for the NKA Inc. must decide whether to accept (alternative 1), further analyze (alternative 2), or reject (alternative 3) the shipment (lot) of incoming material. The historical data indicates that there is 30% chance that the lot is poor quality (S 1), 50% chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3). Assume the following payoff table is available. The values in the payoff table are in thousands of dollars. Based on historical data, if the lot is poor quality, 40% of the items are defective. If the lot is fair quality 22% of the items are defective. If the lot is good quality, 10% of the items are defective. The quality control manager inspects one unit from a recent shipment. After inspecting it, he determines that the unit is defective. If the inspected item is defective, determine which alternative action the quality control manager should choose. 1-1904 Chapter 01 - An Introduction to Business Statistics 88. A decision maker has prepared the following decision tree. There are two main decision alternatives (A and B). The probabilities for the states of nature are as follows: P(H) = .3, P(M) = .5, P(L) = .2, P(S) = .25, P(P) = .75. Calculate the highest expected profit for the decision maker and determine which of the two alternatives he/she should select. 1-1905 Chapter 01 - An Introduction to Business Statistics 89. A company wants to add a new product to its existing line of products. There are two similar candidate products A and B. The demand for the new product could be high, medium, or low with probabilities of .25, .5, and .25 respectively. The demand and the corresponding profit for each product is: Which product should the company select based on the expected monetary value criterion? 90. An investor is looking at three possible investments - growth stock, blue chip stock, or municipal bonds. The investment performance will vary depending on the investment market condition of Bull (market rising), flat, or Bear (market falling). The investment return for each investment for the corresponding market conditions is given below: Which investment would the investor select if the maximin criterion is used? 1-1906 Chapter 01 - An Introduction to Business Statistics 91. An investor is looking at three possible investments - growth stock, blue chip stock, or municipal bonds. The investment performance will vary depending on the investment market condition of Bull (market rising), flat, or Bear (market falling). The investment return for each investment for the corresponding market conditions is given below: Which investment would the investor select if the maximax criterion is used? 1-1907 Chapter 01 - An Introduction to Business Statistics Chapter 19 Decision Theory Answer Key True / False Questions 1. The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 2. A set of potential future conditions that will have an affect on the results of a decision is called the states of nature. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 To...
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