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Exam 7: Decision Analysis

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Question 31

Multiple Choice

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The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use,as follows: If she feels that there is a 60% chance that the new cable network will be successful,what is her expected cost (per thousand "hits") for the strategy she will be selecting?

A) $3.40
B) $4.60
C) $8.00
D) $9.00
E) $10.00

F) C) and D)
G) A) and D)

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Question 32

Multiple Choice

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A former politician,who is now the owner of an Ottawa consulting firm,is trying to decide whether to hire one,two,or three consultants.He estimates that profits next year (in thousands of dollars) will vary with demand for his consulting services as follows: If he feels the chances of low,medium,and high demand are 50%,20%,and 30%,respectively,what is his expected value of perfect information?

A) $54,000
B) $65,000
C) $70,000
D) $80,000
E) $135,000

F) All of the above
G) B) and E)

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Question 33

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The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: For what range of probability that demand will be high,will she decide to lease the large facility?

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the television media strategy?

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What would be the total payoff if script #1 was a success,but its sequel was not?

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the mixed media strategy?

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the expected value for the decision alternative to select the cancer lab?

A manager has developed a payoff table that indicates the profits associated with a set of alternatives under two possible states of nature.Answer the following questions. (i)Determine the expected value of perfect information if P(S2)= .40. (ii)Determine the range of P(S2)for which each alternative would be optimal. 11eab92b_c4a2_d7f1_99e6_e3e40ec631f6

In decision theory,states of nature refer to a set of possible values for a random variable.

A sensitivity analysis graph:

A utility is a quantification of a person's value for various payoffs.

The operations manager for a well-drilling company must recommend whether to build a new facility,expand his existing one,or do nothing.He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: If he feels the chances of low,normal,and high precipitation are 30%,20%,and 50%,respectively,what are expected long-run profits for the alternative he will select?

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the probability that script #1 will be a success,but its sequel will not?

A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called:

Which of the following is not true about influence diagrams?

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What is the expected value of selecting script #2?

An outcome over which the decision maker has no control is called:

The sum over the states of nature of the payoff multiplied by probability of each state of nature is called what?

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30% chance that demand will be high,what are the expected monthly profits for the outlet she will decide to lease?

Influence diagrams represent complex situations with many random variables,but only one decision variable.