Use Excel Spreadsheets to solve Given the following payoff table:i).ii).Decision Alternativeiii).12A250100The probabilities for the states of nature are: P(A) = 0.65, P(B) = 0.15, and P(C) = 0.20.State of NatureB100100What is the optimal decision value if perfect information were available?C2575Using the EMV approach, what is the recommended decision? What is its expected monetary value?What is the expected value of perfect information?

Here, two alternatives are available 1 and 2, I would determine the optimal decision value if…

Answered: The probabilities for the states of…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section9.2: Elements Of Decision Analysis

Problem 2P

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The following payoff table shows the profit for a decision problem with two states of nature and two decision alternatives. Decision Alternative State of Nature $1 d₁ d₂ (a) Suppose P(s₁) = 0.2 and P(5₂) = 0.8. What is the best decision using the expected value approach? The best decision is --?-- with an expected value of 12 $₂ 6 3 5 (b) Perform sensitivity analysis on the payoffs for decision alternative d₂. Assume the probabilities are as given in part (a), and find the range of payoffs under states of natures, and so that will keep the solution found in part (a) optimal. As long as the payoff for s₁ under d₁ is --?-- , then the solution found in part (a) will be optimal. then the solution found in part (a) will be optimal. As long as the payoff for s₂ under d₁ is --?-- Is the solution more sensitive to the payoff under state of nature s₁ or 5₂? O $₁ 0 5₂
7. Consider the following decision table, which Joe Blackburn has developed for Vanderbilt Enterprises: States of Nature Decision Alternatives Probability: 0.35 0.25 0.40 Low Medium High A $35 $80 $65 B $85 $50 $70 C $55 $70 $75 D $70 $85 $65 E $70 $75 $85 Part 2 The alternative that provides Blackburn the greatest expected monetary value (EMV LOADING... ) is ▼ D E A B C The EMV for this decision is $_______(enter your answer as a whole number).
The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value to recommend a decision.
Exhibit 20-2Below is a payoff table involving three states of nature and two decision alternatives. Decision States of Nature Alternative s1 s2 s3 A 80 45 –20 B 40 50 15 P(s1) = .1, P(s2) = .6, and P(s3) = .3.Refer to Exhibit 20-2. The expected value of the best alternative equals _____. a. 12 b. 38.5 c. 29 d. 105
Decision Tree Analysis. You are considering the decision to purchase a machine for internal production or to subcontract the work to an external source. The following information has been provided by your financial managers: Cost to purchase the machine—$35,000 Cost to subcontract the work—$5,000 Probability of a good market = 70% Probability of a poor market = 30% Reward if the prediction occurs: In the purchase machine decision good market scenario—$80,000; in the poor market scenario—$30,000 In the Subcontract decision good market scenario—$50,000; in the poor market scenario—$15,000 1. What is the expected value of the decision to purchase the machine?
A landlord can either lease for one or two years or sell offices outrightly for K100 million with payoffs as follows: Lease -100 50 150 Sell 100 100 100 The probability of rejecting is 30%, leasing for one year is 50% and for two years 20%. Required: What is the optimal decision strategy if perfect information were available? What is the expected value of perfect information? A decision maker is looking to minimising costs through three alternative decisions a1 , b2 and c3 under two states of nature/events S1 and S2 with S1 having a probability of 30% . For a1 payoffs for s1 K100 million and s2 K540 million For a2 payoff for s1 K150 million and s2 –K50 million For a3 payoff for s1 K350 million and s2 K320 million Required: Find EMV and recommend the course of action Find the…
Question 2 An oil company must decide whether or not to drill an oil well in a particular area that they already own. The decision maker (DM) believes that the area could be dry, reasonably good or a bonanza. See data in the table which shows the gross revenues for the oil well that is found. Decision Drill $0 Abandon $0 Probability 0.3 Dry (D) Seismic Results No structure(N) Open(0) Closed (C) Reasonably good(G) $85 $0 0.3 Drilling costs 40M. The company can take a series of seismic soundings at a cost of 12M) to determine the underlying geological structure. The results will be either "no structure", "open structure or "closed structure". The reliability of the testing company is as follows that is, this reflects their historical performance. Bonanza(B) Note that if the test result is "no structure" the company can sell the land to a developer for 50 m. otherwise (for the other results) it can abandon the drilling idea at no benefit to itself. $200 m $0 0.4 Dry(d) 0.7 0.2 0.1…
Very Favorable Average Market Unfavorable Alternatives Market Market Build new plant $250,000 $180.000 - S200,000 Subcontract $270.000 $185,000 - $220,000 Overtime S100.000 $50,000 - $12.000 Do Nothing SO SO $0 a) Using the decision making under uncertainty with the criterion of Maximax The appropriate decision will be The value of the return under this decision is $ b) Using the decision making under uncertainty with the criterion of Maximin The appropriate decision will be The value of the return under this decision is $ c) Using the decision making under uncertainty with the criterion of Equally Likely The appropriate decision will be The value of the return under this decision is $ (enter your answer as a whole number).
3. The manager for a manufacturing company must recommend whether to construct a large plant, construct a small plant or do nothing. He estimates the long-run profits in $ as follows: State of Nature Alternative Good Average Poor Market($) Market ($) Market ($) Construct a 100,000 35,000 -60,000 large plant Construct a 75,000 25,000 -40,000 small plant Do nothing -5,000 0 0 Probability 25% 50% 25% Solve using: A. Expected Opportunity Loss B. Expected Value of Perfect Information
Your company must decide whether to introduce a new product. The sales of the product will be either at a high (success) or low (failure) level. The conditional value for this decision is as follows Decision High Low Introduce $4,000,000 -$2,000,000 Do Not Introduce 0 0 Probability 0.3 0.7 You have the option to conduct a market survey to sharpen you market demand estimate. The survey costs $200,000. The survey provides incomplete information about the sales, with three possible outcomes: (1) predicts high sales, (2) predicts low sales, or (3) inconclusive. Such surveys have in the past provided these results Result High Low Predicts High 0.4 0.1 Inconclusive 0.4 0.5 Predicts Low 0.2 0.4 c) Draw the complete decision tree, including the survey option. Explain where the values on the decision tree come from
The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature Low Demand Medium Demand High Demand Decision Alternative s1 s2 s3 Manufacture, d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. Use a decision tree to recommend a decision.Recommended decision: Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. EVPI: $ fill in the blank 3 A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(F | s1) = 0.10 P(U | s1) = 0.90 P(F | s2) = 0.40 P(U |…
Construct a decision tree and answer the following questions: What is the EMV of each decision alternative? Which action should be selected? What is the expected value with perfect information? What is the expected value of perfect information?

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