OPERATIONS MANAGEMENT CUSTOM ACCESS
11th Edition
ISBN: 9780135622438
Author: KRAJEWSKI
Publisher: PEARSON EDUCATION (COLLEGE)
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Question
Chapter A, Problem 22P
Summary Introduction
Interpretation: The expected payoff for the best alternative is to be determined by using the decision tree.
Concept Introduction:
Decision tree can be defined as the decision support tool or tree like decision model which is used to represents the series of decisions and their objective way to evaluate the alterative.
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A 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 minimal 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?
Payoff Table
Decision Alternatives
Demand
Low
Medium
High
Small, d1
400
500
600
Medium, d2
100
600
800
Large, d3
-300
400
1200
1). If nothing is known about the demand probabilities, what are the recommended decision using the Maximax
(optimistic), Maximin (pessimistic) and Equally Likely?
2). If P(low) = 0.20, P(medium) = 0.35, and P(high) = 0.45. What is the recommended decision using the expected monetary value approach?
3). What is the expected value of perfect information (EVPI)?
Following is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars.
State of Nature
Decision Alternative
Strong Demand S1
Weak Demand S2
Small complex, d1
8
7
Medium complex, d2
14
5
Large complex, d3
20
-9
Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as the payoff for…
Chapter A Solutions
OPERATIONS MANAGEMENT CUSTOM ACCESS
Ch. A - Mary Williams, owner of Williams Products, is...Ch. A - Prob. 2PCh. A - An interactive television service that costs $10...Ch. A - A restaurant is considering adding fresh brook...Ch. A - Spartan Castings must implement a manufacturing...Ch. A - A news clipping service is considering...Ch. A - Prob. 7PCh. A - Techno Corporation is currently manufacturing an...Ch. A - The Tri-County Generation and Transmission...Ch. A - Prob. 10P
Ch. A - Tri-County G&T sells 150,000 MWh per year of...Ch. A - The Forsite Company is screening three ideas for...Ch. A - Prob. 13PCh. A - Prob. 14PCh. A - Janice Gould of Krebs Consulting is in the process...Ch. A - Build-Rite Construction has received favorable...Ch. A - Prob. 17PCh. A - Prob. 18PCh. A - Prob. 20PCh. A - Prob. 21PCh. A - Prob. 22PCh. A - Prob. 24P
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- Decision Analysisarrow_forwardThe following payoff table provides profits based on various possible decision alternatives adn various levels of demand at Robert Klassan's print shop: decision low high alt 1 $10,000 $36,000 alt 2 $6,000 $38,000 alt 3 -$2500 $52,000 The probability of low demand is 0.40 whereas the probability of high demand is 0.60. a) The alternative that provides Robert the greatest expected monetary value is _________ The EMV for this decision is $_______ b) The expected value with perfect information (EVwPI)= $______ c) The expected value of perfect information (EVPI) for Robert= $________arrow_forwardThe following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Decision Alternative If S1 d₁ d₂ States of Nature then ? $1 240 90 90 15 The 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 S3 then ? (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 its expected value? The recommended decision without perfect information is ? EV = (d) What is the expected value of perfect information? EVPI = îarrow_forward
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- help me answer this question plsarrow_forwardA decision maker has prepared the following payoff table. States of Nature Alternative High Low Buy 90 10 Rent 60 35 Lease 50 40 Using the Maximax criterion, what is the best decision and the expected payoff? Best decision Payoff 3 of 5arrow_forwardProblem 4-11 (Algorithmic) Following is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S₁ Weak Demand S₂ Small complex, di 6 Medium complex, dz Large complex, d3 8 14 20 3 -8 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.78 that demand will be strong (S₁) and a corresponding probability of 0.22 that demand will be weak (S₂). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.1 million and as long as the payoff for the weak demand…arrow_forward
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