Cal Bender and Becky Addison have known each other since high school. Two years ago they entered the same university and today they are taking undergraduate courses in the business school. Both hope to graduate with degrees in finance. In an attempt to make extra money and to use some of the knowledge gained from their business courses, Cal and Becky have decided to look into the possibility of starting a small company that would provide word processing services to students who needed term papers or other reports prepared in a professional manner. Using a systems approach, Cal and Becky have identified three strategies. Strategy 1 is to invest in a fairly expensive microcomputer system with a high-quality laser printer. In a favourable market, they should be able to obtain a net profit of R10,000 over the next 2 years. If the market is unfavourable, they can lose R8,000. Strategy 2 is to purchase a less expensive system. With a favourable market, they could get a return during the next 2 years of R8,000. With an unfavourable market, they would incur a loss of R4,000. Their final strategy, strategy 3, is to do nothing.Cal is basically a risk taker, whereas Becky tries to avoid risk. a. What type of decision procedure should Cal use? What would Cal’s decision be? b. What type of decision maker is Becky? What decision would Becky make? c. If Cal and Becky were indifferent to risk, what type of decision approach should they use? What would you recommend if this were the case?d. Suppose Cal and Becky agree to attach a weight of 0.6 to the worst case scenario. Use this information to decide which decision to make. e. Use a decision approach that allows Cal and Becky to minimise the error associated with the decision that they make. Cal Bender and Becky Addison have known each other since high school. Two years ago they entered the same universityand today they are taking undergraduate courses in the business school. Both hope to graduate with degrees in finance. Inan attempt to make extra money and to use some of the knowledge gained from their business courses, Cal and Beckyhave decided to look into the possibility of starting a small company that would provide word processing services to studentswho needed term papers or other reports prepared in a professional manner. Using a systems approach, Cal and Beckyhave identified three strategies.Strategy 1 is to invest in a fairly expensive microcomputer system with a high-quality laser printer. In a favourable market,they should be able to obtain a net profit of R10,000 over the next 2 years. If the market is unfavourable, they can loseR8,000. Strategy 2 is to purchase a less expensive system. With a favourable market, they could get a return during thenext 2 years of R8,000. With an unfavourable market, they would incur a loss of R4,000. Their final strategy, strategy 3, isto do nothing.Cal is basically a risk taker, whereas Becky tries to avoid risk.a. What type of decision procedure should Cal use? What would Cal's decision be? b. What type of decision maker isBecky? What decision would Becky make?c. If Cal and Becky were indifferent to risk, what type of decision approach should they use? What would you recommend ifthis were the case?d. Suppose Cal and Becky agree to attach a weight of 0.6 to the worst case scenario. Use this information to decide whichdecision to make.e. Use a decision approach that allows Cal and Becky to minimise the error associated with the decision that they make.

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Answered: Cal Bender and Becky Addison have known…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Cal Bender and Becky Addison have known each other since high school. Two years ago they entered the same university and today they are taking undergraduate courses in the business school. Both hope to graduate with degrees in finance. In an attempt to make extra money and to use some of the knowledge gained from their business courses, Cal and Becky have decided to look into the possibility of starting a small company that would provide word processing services to students who needed term papers or other reports prepared in a professional manner. Using a systems approach, Cal and Becky have identified three strategies. Strategy 1 is to invest in a fairly expensive microcomputer system with a high-quality laser printer. In a favourable market, they should be able to obtain a net profit of R10,000 over the next 2 years. If the market is unfavourable, they can lose R8,000. Strategy 2 is to purchase a less expensive system. With a favourable market, they could get a return during the next 2 years of R8,000. With an unfavourable market, they would incur a loss of R4,000. Their final strategy, strategy 3, is to do nothing. Cal is basically a risk taker, whereas Becky tries to avoid risk. a. What type of decision procedure should Cal use? What would Cal’s decision be? b. What type of decision maker is Becky? What decision would Becky make? c. If Cal and Becky were indifferent to risk, what type of decision approach should they use? What would you recommend if this were the case? d. Suppose Cal and Becky agree to attach a weight of 0.6 to the worst case scenario. Use this information to decide which decision to make. e. Use a decision approach that allows Cal and Becky to minimise the error associated with the decision that they make.

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