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MindTap Business Statistics for Ragsdale's Spreadsheet Modeling & Decision Analysis, 8th Edition, [Instant Access], 2 terms (12 months)
8th Edition
ISBN: 9781337274876
Author: Cliff Ragsdale
Publisher: Cengage Learning US
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3. (Note: This is a variation of problem 6 of chapter 16 in your textbook.) Kenya and
Dionne live on adjacent plots of land. Each has two potential uses for their land,
the present values of each of which depend on the use adopted by the other, as
summarized in the table. All the values in the table are known to both parties.
Dionne
Rental housing
Bee keeping
Kenya
Apple
growing
A: $200
B: $700
A: $400
B: $650
Pig
farming
A: $450
B: $400
A: $450
B: $500
a. What is the efficient outcome?
b. If there are negotiation costs of $150, what activities will the two
pursue on their land?
c. If there are no negotiation costs and the two negotiate, what activities
will the two pursue on their land? How might a benevolent planner help
reduce the costs of negotiating to encourage the optimal combination
of land uses?
Which of the following is true?
a)The maximin criterion is an approach in Optimization under uncertainty which finds a solution that has the best possible payoff.
b)The maximin criterion is an approach in Optimization under uncertainty which finds a solution with the best worst possible payoff.
c)A risk profile represents the probability distribution of uncertain inputs.
d)Decision tree is a method to solve any optimization problem when the outcomes are subject to uncertainty.
Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client's needs.
For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs
$50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%.
The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60,000.
According to Innis' risk measurement system, each unit invested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of
3. The higher risk index associated with the stock fund simply indicates that it is the riskier investment.
Innis's client also specified that at least $300,000 be invested in the money market fund.
Refer to the computer solution shown below.
Optimal…
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