TUTORIAL I DECISION ANALYSIS 1. 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: Size of First Station Small Medium Large Extra Large Good Market (5) Stock Market 50,000 80,000 Bonds CDs 100,000 Probability 300,000 Decision Alternative Fair Market (S) 20,000 30,000 30,000 25,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000. e) what is the criterion of realism decision? Use an a value of 0.8. 0 Develop an opportunity loss table? B) What is the minimax regret decision? 2. Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profit s that would be realized during the next year for each of three investment alternatives Mickey is considering: Good Economy 80,000 30,000 Poor Market (S) 23,000 -10,000 -20,000 0.5 -40,000 -160,000 State of Nature Poor Economy -20,000 20,000 23,000 0.5
TUTORIAL I DECISION ANALYSIS 1. 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: Size of First Station Small Medium Large Extra Large Good Market (5) Stock Market 50,000 80,000 Bonds CDs 100,000 Probability 300,000 Decision Alternative Fair Market (S) 20,000 30,000 30,000 25,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000. e) what is the criterion of realism decision? Use an a value of 0.8. 0 Develop an opportunity loss table? B) What is the minimax regret decision? 2. Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profit s that would be realized during the next year for each of three investment alternatives Mickey is considering: Good Economy 80,000 30,000 Poor Market (S) 23,000 -10,000 -20,000 0.5 -40,000 -160,000 State of Nature Poor Economy -20,000 20,000 23,000 0.5
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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Transcribed Image Text:TUTORIAL DECISION ANALYSIS
1.
e)
0
B)
2.
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:
Size of First
Station
Small
Medium
Large
Extra Large
Stock Market
Bonds
CDs
Good Market
(5)
Probability
a)
b)
50,000
80,000
Decision Alternative.
100,000
300,000
Fair Market
(S)
20,000
30,000
30,000
25,000
For example, if Susan constructs a small station and the market is good, she will realize
a profit of $50,000.
what is the criterion of realism decision? Use an a value of 0.8.
Develop an opportunity loss table?
What is the minimax regret decision?
Mickey Lawson is considering investing some money that he inherited. The following
payoff table gives the profit s that would be realized during the next year for each of
three investment alternatives Mickey is considering:
Good Economy
80,000
30,000
23,000
Poor Market
(5)
0.5
-10,000
State of Nature
-20,000
-40,000
-160,000
Poor Economy
-20,000
20,000
23,000
0.5
What decision would maximize expected profits?
What is the maximum amount that should be paid for a perfect forecast of
the economy?
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