Statistics for Business & Economics, Revised (MindTap Course List)
12th Edition
ISBN: 9781285846323
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Question
Chapter 21.2, Problem 1E
a.
To determine
Construct a decision tree for the problem.
b.
To determine
Compute the optimal decision using the
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:
State of Nature
Decision Alternative S1
S2 S3
di
250 100 100
d2
200 100 150
The probabilities for the states of nature are P(s1) = 0.45, P(s2) = 0.25, and P(53) = 0.3.
(a) What is the optimal decision strategy if perfect information were available?
S1 : - Select your answer - V
S2
Select your answer -
S3 : - Select your answer - V
(b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place.
(c) Using the expected value approach, what is the recommended decision without perfect information?
- Select your answer - v
What is its expected value? If required, round your answer to one decimal place.
(d) What is the expected value of perfect information? If required, round your answer to one decimal place.
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.
A large decision tree has an outcome branch detailed (next page). If decisions D1, D2, and D3 are all options in a 1-year period, find the decision path that maximizes the outcome value. There are specific investments necessary for decision nodes D1, D2, and D3, as indicated on each branch.
Chapter 21 Solutions
Statistics for Business & Economics, Revised (MindTap Course List)
Ch. 21.2 - Prob. 1ECh. 21.2 - A decision maker faced with four decision...Ch. 21.2 - Hudson Corporation is considering three options...Ch. 21.2 - Myrtle Air Express decided to offer direct service...Ch. 21.2 - The distance from Potsdam to larger markets and...Ch. 21.2 - Seneca Hill Winery recently purchased land for the...Ch. 21.2 - The Lake Placid Town Council has decided to build...Ch. 21.3 - Consider a variation of the PDC decision tree...Ch. 21.3 - A real estate investor has the opportunity to...Ch. 21.3 - Dante Development Corporation is considering...
Ch. 21.3 - Hales TV Productions is considering producing a...Ch. 21.3 - Martins Service Station is considering entering...Ch. 21.3 - Lawsons Department Store faces a buying decision...Ch. 21.4 - Suppose that you are given a decision situation...Ch. 21.4 - In the following profit payoff table for a...Ch. 21.4 - To save on expenses, Rona and Jerry agreed to form...Ch. 21.4 - The Gorman Manufacturing Company must decide...Ch. 21 - An investor wants to select one of seven mutual...Ch. 21 - Warren Lloyd is interested in leasing a new car...Ch. 21 - Hemmingway, Inc. is considering a 50 million...Ch. 21 - Embassy Publishing Company received a six-chapter...Ch. 21 - Lawsuit Defense Strategy John Campbell, an...
Knowledge Booster
Similar questions
- Suppose ?(?1) = 0.2 and ?(?2) = 0.8. What is the best decision using theexpected value approach?arrow_forwardThe owner of Catamount Ice Cream needs to decide which size shop to rent in a new strip mall. He estimates that monthly profits will vary with demand for ice cream as follows: High Demand Demand Low Size of Shop Large 1,000 1,300 900 1,400 Medium Small 800 1,500 He feels there is a 40% chance that demand will be low and a 60% chance that demand will be high. He'll use a decision tree to help him decide what to do. When he draws his decision tree, how many circles will there be?arrow_forwardThe following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Excel File: data20-01.xls States of Nature Dicision Alternative 81 82 83 250 100 25 da 100 100 75 a. Construct a decision tree for this problem. $1 82 $3 81 da 82 b. Suppose that the decision maker obtains the probabilities P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. Use the expected value approach to %3D the optimal decision. EV(dı) = (to 1 decimal) %3D EV(d2) = %3D The optimal decision is Select your answer- v 00arrow_forward
- The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. DecisionAlternative States of Nature s1 s2 s3 d1 240 90 15 d2 90 90 65 Suppose that the decision maker obtained the probabilities P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. Use the expected value approach to determine the optimal decision. EV(d1) = EV(d2) = The optimal decision is ?arrow_forwardA payoff table is given as S1 S2 S3 D1 250 750 500 D2 300 -250 1200 D3 500 500 600 a. What choice should be made by the optimistic decision maker? b. What choice should be made by the conservative decision maker? c. What decision should be made under minimax regret? d. If the probabilities of d1, d2, and d3 are .2, .5, and .3 respectively, then what choice should be made under expected value?arrow_forwardThe medical department at a local government agency has compiled test results for sick individuals who have been tested for the flu. They have found that not all people who test positive for the flu actually have the flu, and some people who test negative for the flu actually have the flu. The following tree diagram shows the conditional relative frequencies. Sick Individuals 23% 27% 75% 25% 25% Have the flu Do not have the flu 95% 92% Test positive What percent of sick individuals test negative for the flu? Test negative Test positive Test negativearrow_forward
- The National Highway Association is studying the relationship between the number of bidders on a highway project and the winning (lowest) bid for the project. Of particular interest is whether the number of bidders increases or decreases the amount of the winning bid. Bidders Price 9.0 5.1 9.0 8.0 3.0 9.7 10.0 7.8 5.0 7.7 10.0 5.5 7.0 8.3 11.0 5.5 6.0 10.3 6.0 8.0 4.0 8.8 7.0 9.4 7.0 8.6 7.0 8.1 6.0 7.8 Given: Correlation of Coefficient: 0.7064 (This is correct) Coefficient of determination: 49.90% (This is correct) ŷ = 11.2360 + (-0.4667)x (This is correct) Create a scatter plot of the data Complete a regression analysis of the relationship. Slope = ______ Estimate the winning bid if there were seven bidders. Winning bid cost ______ millions. Compute the 95% prediction interval for a winning bid if there are seven bidders. [ _____________, ______________]arrow_forwardThe National Highway Association is studying the relationship between the number of bidders on a highway project and the winning (lowest) bid for the project. Of particular interest is whether the number of bidders increases or decreases the amount of the winning bid. Bidders Price 9.0 5.1 9.0 8.0 3.0 9.7 10.0 7.8 5.0 7.7 10.0 5.5 7.0 8.3 11.0 5.5 6.0 10.3 6.0 8.0 4.0 8.8 7.0 9.4 7.0 8.6 7.0 8.1 6.0 7.8 GIVEN: correlation coefficient: - 0.7064 Slope: -0.4667 Coefficient of determination: 49.90% regression equation: ŷ= 11.2360 + (-4467)x FIND: Estimate the winning bid if there were seven bidders. Winning bid cost _________ millions. Explain. Compute the 95% prediction interval for a winning bid if there are seven bidders. [ _______________ , _______________ ] (Explain).arrow_forwardLearning Activity: The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature State of nature Decision alternative s1 S2 S3 d1 200 160 -30 d2 180 210 -20 If the decision maker estimates the following probabilities for the three states of nature; P(s1) = 0.1, P(s2) = 0.5 and P(s3) = 0.4 (1) Find the best decision to be made. Include the risk profile associated with your choice. (i) Find the expected value of perfect information. (ii) If the probability info were not available, what decision would have been best according to the conservative approach?arrow_forward
- A company is facing three types of decisions for the purchasing of a seasonal product. The profitprojection may depend on the demand level. The payoffs for the situations are given in the followingtable:DemandDecision High (s1) Medium (s2) Low (s3)d1 60 60 50d2 80 80 30d3 100 70 101. If the prior probabilities are 0.3, 0.3, and 0.4, respectively, what is the recommended decision?Show all the calculations and answer with a decision tree.2. At each preseason sales meeting, the vice president of sales provides a personal opinion regarding potential demand for the product. The prediction of the vice president have alwaysbeen either excellent (E) or very good (G). Posterior probabilities are as follows.P(V)=0.7; P(E)=0.3P(s1|E)=0.34; P(s1|V)=0.2P(s2|E)=0.32; P(s2|V)=0.26;Use a decision tree to give the optimal decision strategy.43. Give the EVPI and the EOL, and EVSI.4. Suppose that the prior probability of a low demand is always fixed to 0.4, give a sensitivityanalysis on the other…arrow_forwardKeith Rollag (2007) noticed that coworkers evaluate and treat "new" employees differently from other staff members. He was interested In how long a new employee is considered "new" in an organization. He surveyed four organizations ranging in size from 34 to 89 employees. He found that the "new" employee status was mostly reserved for the 30% of employees in the organization with the lowest tenure. (a) In this study, what was the real range of employees hired by each organization surveyed? employees (b) What was the cumulative percent of "new" employees with the lowest tenure?arrow_forwardA firm making production plans believes there is a 30% probability the price will be $10, a 50% probability the price will be $15, and a 20% probability the price will be $20. The manager must decide whether to produce 6,000 units of output (A), 8,000 units (B) or 10,000 units (C). The following table shows 9 possible outcomes depending on the output chosen and the actual price. Production Profit (Loss) when price is $10 $15 $20 6,000 (A) −$200 $400 $1,000 8,000 (B) −$400 $600 $1,600 10,000 (C) −$1,000 $800 $3,000 What is the variance if 6,000 units are produced?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Holt Mcdougal Larson Pre-algebra: Student Edition...AlgebraISBN:9780547587776Author:HOLT MCDOUGALPublisher:HOLT MCDOUGAL
Holt Mcdougal Larson Pre-algebra: Student Edition...
Algebra
ISBN:9780547587776
Author:HOLT MCDOUGAL
Publisher:HOLT MCDOUGAL