(a)
Interpretation: It is to be determined that the given decision criteria Maximin is best alternative.
Concept Introduction:
The decision criteria can be defined as the method or a guideline which is used to make decision. This decision criteria is based on the detailed specification of the alternative along with the scoring system which is usually called as decision matrix.
(b)
Interpretation: It is to be determined that the given decision criteria Maximax is best alternative.
Concept Introduction:
The decision criteria can be defined as the method or a guideline which is used to make decision. This decision criteria is based on the detailed specification of the alternative along with the scoring system which is usually called as decision matrix.
(c)
Interpretation: It is to be determined that the given decision criteria Laplace is best alternative.
Concept Introduction:
The decision criteria can be defined as the method or a guideline which is used to make decision. This decision criteria is based on the detailed specification of the alternative along with the scoring system which is usually called as decision matrix.
(d)
Interpretation: It is to be determined that the given decision criteria minimax regret is best alternative.
Concept Introduction:
The decision criteria can be defined as the method or a guideline which is used to make decision. This decision criteria is based on the detailed specification of the alternative along with the scoring system which is usually called as decision matrix.
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- A decision maker has prepared the following payoff table. States of Nature Alternative High Low Buy 80 -5 Rent 85 45 Lease 60 50 Using the Maximax criterion, what is the best decision and the expected payoff? Best decision Payoffarrow_forwardDecision Tree Analysis. You are considering the decision to purchase a machine for internal production or to subcontract the work to an external source. The following information has been provided by your financial managers: Cost to purchase the machine—$35,000 Cost to subcontract the work—$5,000 Probability of a good market = 70% Probability of a poor market = 30% Reward if the prediction occurs: In the purchase machine decision good market scenario—$80,000; in the poor market scenario—$30,000 In the Subcontract decision good market scenario—$50,000; in the poor market scenario—$15,000 1. What is the expected value of the decision to purchase the machine?arrow_forwardA software company recently designed and developed a new service for its customers. However, it needs to decide whether to launch the service next month or wait for six months. The company performs research and discovers the probability of success for both options, along with their potential revenue. It also learns the probability of failure and corresponding losses for each. *Option A: Launching the service next month has a 55% probability of success with potential revenue of $250,000. It has a 45% probability of failure with a potential loss of $125,000.* *Option B: Launching the service in six months has a 65% probability of success with potential revenue of $400,000. It has a 35% probability of failure with a potential loss of $200,000.* Which option should the company pursue?arrow_forward
- 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…arrow_forwardA 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…arrow_forwardUse the following information to answer multiple-choice Questions 21 to 30. A fibre glass company is considering the possibility of introducing a new product. Because of the expense involved in developing the initial moulds and acquiring the necessary equipment to produce fibreglass, it has decided to conduct a pilot study to make sure that the market will be adequate. They estimate that the pilot study will cost £12,000. Furthermore, the pilot study can be either successful or unsuccessful. The basic decisions are to build a large manufacturing facility, a small manufacturing facility, or no facility at all. With a favourable market, the company can expect to make £100,000 from the large facility or £60,000 from the smaller facility. If the market is unfavourable, however, they estimate that they would lose £40,000 with a large facility, while they would lose only £30,000 with the small facility. The company estimates that the probability of a favourable market given a successful…arrow_forward
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- Distinguish between the Expected Monetary Value (EMV) criterion and theExpected Utility Value criterion to decision makingarrow_forwardThe Gorman 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): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value to recommend a decision.arrow_forwardA decision tree is a graphic display of the decision process that indicates decision alternatives, states of nature and their respective probabilities, and payoffs for each combination of alternative and states of nature. O True O False * Previous Next ► MacBook Air 000 000 DD F7 セゴ F5 $ & レ 9 * 00arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,