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A student is thinking about starting her own independent gasoline station and needs to decide how large her station should be. She has developed the following table of annual returns: Size of the station Regret table Growing States of nature Size of the station Mini Small Growing $44,000.00 $60,000.00 Stable Declining -$8,000.00 $7,000.00 $22,000.00 $11,000.00 Max Min Equal likelihood EMV Max pay Mini Medium Large Very large Probability $80,000.00 $110,000.00 $320,000.00 $31,000.00-$21,000.00 $30,000.00 $41,000.00 $26,000.00-$161,000.00 Small Medium 0.48 0.21 0.31 Large Very large Probability Your tasks: 1. What is the maximax, maximin, equal likelihood and minimax regret decision? (you need to develop your own regret table in order to answer minimax regret decision) 2. Develop a decision tree. Don't forget to prune the unwanted decision branches. label correctly including each alternative, states of nature, probability and payoff) put your final decision and the payoff amount in the sqare symbol). Prune: 3%, Final payoff and decision (which alternative) : 4%, each alternative payoff. 3% Setup correctly: 5% 3. Identify EMV(expected monetary value, or expected value), EVwPI (expected value with Stable Declining Max EOL 0.48 0.21 0.31 probability payoff 0

A student is thinking about starting her own independent gasoline station and needs to decide how large her station should be. She has developed the following table of annual returns: Size of the station Regret table Growing States of nature Size of the station Mini Small Growing $44,000.00 $60,000.00 Stable Declining -$8,000.00 $7,000.00 $22,000.00 $11,000.00 Max Min Equal likelihood EMV Max pay Mini Medium Large Very large Probability $80,000.00 $110,000.00 $320,000.00 $31,000.00-$21,000.00 $30,000.00 $41,000.00 $26,000.00-$161,000.00 Small Medium 0.48 0.21 0.31 Large Very large Probability Your tasks: 1. What is the maximax, maximin, equal likelihood and minimax regret decision? (you need to develop your own regret table in order to answer minimax regret decision) 2. Develop a decision tree. Don't forget to prune the unwanted decision branches. label correctly including each alternative, states of nature, probability and payoff) put your final decision and the payoff amount in the sqare symbol). Prune: 3%, Final payoff and decision (which alternative) : 4%, each alternative payoff. 3% Setup correctly: 5% 3. Identify EMV(expected monetary value, or expected value), EVwPI (expected value with Stable Declining Max EOL 0.48 0.21 0.31 probability payoff 0

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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1 2 A B C D E F A student is thinking about starting her own independent gasoline station and needs to decide how large her station should be. She has developed the following table of annual returns: G H I J K L M N Р R S T U 3 Size of the station 4 States of nature Regret table Growing Stable Declining Max EOL Size of 5 the station 6 Mini 7 Small Growing $44,000.00 $60,000.00 8 Medium $80,000.00 Stable Declining -$8,000.00 $7,000.00 $22,000.00 $11,000.00 $31,000.00 $21,000.00 Max Min Equal likelihood EMV Max pay Mini Small Medium 9 Large $110,000.00 $30,000.00 $41,000.00 Large 0 Very large $320,000.00 $26,000.00-$161,000.00 1 Probability 0.48 0.21 0.31 Very large Probability 0.48 0.21 0.31 probability payoff 2 Your tasks: 3 1. What is the maximax, maximin, equal likelihood and minimax regret decision? 4 (you need to develop your own regret table in order to answer minimax regret decision) 5 2. Develop a decision tree. Don't forget to prune the unwanted decision branches. 6 (label correctly including each alternative, states of nature, probability and payoff) 7 (put your final decision and the payoff amount in the sqare symbol). 18 Prune: 3%. Final payoff and decision (which alternative): 4%, each alternative payoff: 3% 9 Setup correctly: 5% 20 3. Identify EMV(expected monetary value, or expected value), EVwPI (expected value with 21 perfect information) and EVPI (expected value of perfect information).. 22 23 Your answer here: 24 Decision: 25 Maximax 26 Maximin 27 E. likelihood 28 Minimax 29 EMV 0 EVwPI 1 EVPI 32 33 Payoff Alternative 3% (1.5 to payoff, 1.5 to alternative) 3% (1.5 to payoff, 1.5 to alternative) 3% (1.5 to payoff, 1.5 to alternative) 8% (1.5 to payoff, 1.5 to alternative) 2% 3% 3%
Transcribed Image Text:1 2 A B C D E F A student is thinking about starting her own independent gasoline station and needs to decide how large her station should be. She has developed the following table of annual returns: G H I J K L M N Р R S T U 3 Size of the station 4 States of nature Regret table Growing Stable Declining Max EOL Size of 5 the station 6 Mini 7 Small Growing $44,000.00 $60,000.00 8 Medium $80,000.00 Stable Declining -$8,000.00 $7,000.00 $22,000.00 $11,000.00 $31,000.00 $21,000.00 Max Min Equal likelihood EMV Max pay Mini Small Medium 9 Large $110,000.00 $30,000.00 $41,000.00 Large 0 Very large $320,000.00 $26,000.00-$161,000.00 1 Probability 0.48 0.21 0.31 Very large Probability 0.48 0.21 0.31 probability payoff 2 Your tasks: 3 1. What is the maximax, maximin, equal likelihood and minimax regret decision? 4 (you need to develop your own regret table in order to answer minimax regret decision) 5 2. Develop a decision tree. Don't forget to prune the unwanted decision branches. 6 (label correctly including each alternative, states of nature, probability and payoff) 7 (put your final decision and the payoff amount in the sqare symbol). 18 Prune: 3%. Final payoff and decision (which alternative): 4%, each alternative payoff: 3% 9 Setup correctly: 5% 20 3. Identify EMV(expected monetary value, or expected value), EVwPI (expected value with 21 perfect information) and EVPI (expected value of perfect information).. 22 23 Your answer here: 24 Decision: 25 Maximax 26 Maximin 27 E. likelihood 28 Minimax 29 EMV 0 EVwPI 1 EVPI 32 33 Payoff Alternative 3% (1.5 to payoff, 1.5 to alternative) 3% (1.5 to payoff, 1.5 to alternative) 3% (1.5 to payoff, 1.5 to alternative) 8% (1.5 to payoff, 1.5 to alternative) 2% 3% 3%
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