#28 Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table: GOOD FAIR POOR SIZE OF MARKET MARKET MARKET FIRST STATION ($) ($) ($) Small 50,000 20,000 –10,000 Medium 80,000 30,000 –20,000 Large 100,000 30,000 –40,000 Very large 300,000 25,000 –160,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000. (a) Develop a decision table for this decision. (b) What is the maximax decision? (c) What is the maximin decision?
#28
Even though independent gasoline stations have been having a difficult time, Susan Solomon has
been thinking about starting her own independent gasoline station. Susan’s problem is to decide how
large her station should be. The annual returns will depend on both the size of her station and a number
of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan
developed the following table:
GOOD FAIR POOR
SIZE OF MARKET MARKET MARKET
FIRST STATION ($) ($) ($)
Small 50,000 20,000 –10,000
Medium 80,000 30,000 –20,000
Large 100,000 30,000 –40,000
Very large 300,000 25,000 –160,000
For example, if Susan constructs a small station and
the market is good, she will realize a profit of $50,000.
(a) Develop a decision table for this decision.
(b) What is the maximax decision?
(c) What is the maximin decision?
(d) What is the equally likely decision?
(e) What is the criterion of realism decision? Use an a value of 0.8.
(f) Develop an opportunity loss table.
(g) What is the minimax regret decision?
#29
Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help
keep the environment clean. The car she selected is available from only one dealer in the local area, but
that dealer has several leasing options to accommodate a variety of driving patterns. All the leases are
for 3 years and require no money at the time of signing the lease. The first option has a monthly cost of
$330, a total mileage allowance of 36,000 miles (an average of 12,000 miles per year), and a cost of
$0.35 per mile for any miles over 36,000. The following table summarizes each of the three lease
options:
(c) In Europe, there is usually no 00 on the wheel, just the 0. With this type of game, what is the
probability that a player who bets red will win the bet? If a player bets $10 on red every time in this
game (with no 00), what is the expected monetary value?
(d) Since the expected profit (win) in a roulette game is negative, why would a rational person play the
game?
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