The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states ofnature.DecisionAlternativeIf S1d₁d₂States of Naturethen ?$12409090 15The probabilities for the states of nature are P(S₁) = 0.65, P(s₂) = 0.15, and P(s3) = 0.20.(a) What is the optimal decision strategy if perfect information were available?; If S₂ then ?90 65; If S3then ?(b) What is the expected value for the decision strategy developed in part (a)?î(c) Using the expected value approach, what is the recommended decision without perfect information? What is itsexpected value?The recommended decision without perfect information is ?EV =(d) What is the expected value of perfect information?EVPI =î

The expected value approach is a decision-making method that takes into account the probability of…

Answered: The following payoff table shows profit…

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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Use the following decision criteria to choose how much the firm should supply: Maximax rule Maximin rule Minimax regret criterion (Construct a regret table for this) Equal probability criterion
Construct a decision tree for this problem. What is the recommended decision if the agency opinion is not used? What is the expected value? What is the expected value of perfect information? What is Hale’s optimal decision strategy assuming the agency’s information is used? What is the expected value of the agency’s information? Is the agency’s information worth the $5000 fee? What is the maximum that Hale should be willing to pay for the information? What is the recommended decision?
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Ruka construction Company is considering bidding on a contract for a new office building complex. First company manger must decide whether to bid on the contract or not. The cost of preparing the bid is $20,000. The company has a 0.75 probability of winning the contract if it submits a bid. If the company wins the bid, it will have to pay $1,500,000 to become a partner in the project. The company will then consider doing a market research study to forecast demand prior to beginning construction. The cost of this study is $100,000. The possible outcomes of the market research study show there is 45% for high interest and 35% for moderate and 20% for low interest for office building. The manager of the company regardless of the result of market study or even without doing market study should decide whether to build the complex or to sell the rights in the project to another developer. If company decides to build the complex, cost of building will be $10,000,000. Based on market study…
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…
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