Solve the following problems using the Decision Analysis. Construct first the decision tree, and thenuse Bayes' Formula to determine the optimal decision.Decision Problems1. The Quano Company is considering the purchase of mineral rights on a piece of propertyfor P1 million. The price includes a seismic test whether the land is of type X or Ygeological formation. The test cannot be done until after the purchase is made.According to reliable information 60% of the land is of type X formation and 40% of thearea is of type Y. If the company decides to drill on the land, it will cost P2.5 million. Itmay hit oil, gas, or a dry well. Drilling experience indicates that the probability of hittingoil is 25% on X formation and 10% on Y formation. The probability of hitting gas is 30%on X formation and 45% on Y formation. The estimated return for an oil well is P5million and from a gas well, P3 million. Should the company purchase mineral rights?

Answered: Solve the following problems using the…

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...

See similar textbooks

Similar questions

A 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 Decision Low Alternative Demand $1 Medium Demand $2 High Demand 53 Manufacture, d -5 55 115 Purchase, d₂ 60 85 The state-of-nature probabilities are P(s₁) = 0.35, P(52) = 0.35, and P(53) = 0.30. (a) Use a decision tree to recommend a decision. The best decision is to purchase the component part. (b) Use EVPI to determine whether the company should attempt to obtain a better estimate of demand, assuming the estimate would come at no further cost. EVPI = 9 The EVPI suggests that the company should consider an attempt to obtain a better estimate of demand. (c) A test market study of the potential demand for the product is expected to report either a favorable (F) or…
( Use an excel sheet to show formulas used )
GENERATE THE DECISION VARIABLE SOLUTION AND GENERATE A SENSITIVITY REPORT CASE 1. Julia's Food Booth Julia Robertson is a senior at Tech, and she's investigating different ways to finance her final year at school. She is considering leasing a food booth outside the Tech stadium at home football games. Tech sells out every home game, and Julia knows, from attending the games herself, that everyone eats a lot of food. She has to pay $1,000 per game for a booth, and the booths are not very large. Vendors can sell either food or drinks on Tech property, but not both. Only the Tech athletic department concession stands can sell both inside the stadium. She thinks slices of cheese pizza, hot dogs, and barbecue sandwiches are the most popular food items among fans and so these are the items she would sell. Most food items are sold during the hour before the game starts and during half time; thus it will not be possible for Julia to prepare the food while she is selling it. She must prepare…
1) A decision maker using an exponential utility function would prefer a random payoff with an expected value of X to a certain payoff of X. True False 2) In a decision tree, a circular node indicates a point where a random event occurs. True False 3) The optimistic and conservative approaches to decision making will always give the same result. True False
State the differences between decision making under certainty, under risk, and under uncertainty.
Decision theory under conditions of risk and uncertainty lends itself to severalmathematical techniques. Examine the difference maximin decision criterion and minimax regret decision criterion.
Problem #4 A through G
Aaron is considering potential
Imagine that you have the following pair of concurrent decisions. First examine both decisions, then indicate the options you prefer. Decision 1: Choose betweenA a sure loss of 1500B a 75% to lose £2000 and 25% chance to lose nothing Decision 2: Choose betweenC a sure gain of £480D a 25% chance to gain £2000 and 75% chance to gain nothing How do you think respondents in a laboratory experiment would decide in Decision 1 and Decision 2? most participants will choose 1B and 2C most participants will choose 1A most participants will choose 1B and 2D most participants will choose 1A and 2D 2) Which of the following can explain the behavior in the lab for decision 1? preference for certainty underestimation of large probabilities individuals are risk loving in the loss domain overweighting of small probabilities concavity of the value function in the gain domain 2. individuals are risk loving in the loss domain
Problem #4 - Jasper Inc. would like you to provide consulting services and provide recommendation on building a new assembly facility for air conditioning units in Florida. Jasper's initial assessment indicates the following conditions for this decision-making problem: With a favorable market in Florida, Jasper thinks that a large facility would result in a net profit of $200,000 to his firm. If the market is unfavorable in Florida, the construction of a large facility would result in $190,000 net loss. - A small facility would result in a net profit of $100,000 in a favorable market, but a net loss of $20,000 would occur if the market was unfavorable. Doing nothing would result in $0 profit in either market conditions. a) Create a decision table for this problem. b) What is your recommendation if y would apply the Maximax criterion (Optimistic)? C What is your recommendation if you would apply the Criterion of Realism (Hurwicz Criterion) with a erricient of realism a = 0.9? d) What is…

Recommended textbooks for you

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

Operations Management

ISBN:

9781259667473

Author:

William J Stevenson

Publisher:

McGraw-Hill Education

Operations and Supply Chain Management (Mcgraw-hi…

Operations Management

ISBN:

9781259666100

Author:

F. Robert Jacobs, Richard B Chase

Publisher:

McGraw-Hill Education

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

Operations Management

ISBN:

9781259667473

Author:

William J Stevenson

Publisher:

McGraw-Hill Education

Operations and Supply Chain Management (Mcgraw-hi…

Operations Management

ISBN:

9781259666100

Author:

F. Robert Jacobs, Richard B Chase

Publisher:

McGraw-Hill Education

Business in Action

Operations Management

ISBN:

9780135198100

Author:

BOVEE

Publisher:

PEARSON CO

Purchasing and Supply Chain Management

Operations Management

ISBN:

9781285869681

Author:

Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:

Cengage Learning

Production and Operations Analysis, Seventh Editi…

Operations Management

ISBN:

9781478623069

Author:

Steven Nahmias, Tava Lennon Olsen

Publisher:

Waveland Press, Inc.

SEE MORE TEXTBOOKS