On a decision tree, at each state-of-nature node: a) the alternative with the greatest EMV is selected. b) an EMV is calculated. c) all probabilities are added together. d) the branch with the highest probability is selected.
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On a decision tree, at each state-of-nature node:
a) the alternative with the greatest EMV is selected.
b) an EMV is calculated.
c) all probabilities are added together.
d) the branch with the highest probability is selected.
Decision Tree
In short, it reflects systematically the potential alternatives to make choices and their implications.
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- It costs a pharmaceutical company 75,000 to produce a 1000-pound batch of a drug. The average yield from a batch is unknown but the best case is 90% yield (that is, 900 pounds of good drug will be produced), the most likely case is 85% yield, and the worst case is 70% yield. The annual demand for the drug is unknown, with the best case being 20,000 pounds, the most likely case 17,500 pounds, and the worst case 10,000 pounds. The drug sells for 125 per pound and leftover amounts of the drug can be sold for 30 per pound. To maximize annual expected profit, how many batches of the drug should the company produce? You can assume that it will produce the batches only once, before demand for the drug is known.The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon spawn during a 24-hour period and must be canned immediately. Tinkan has the following agreement with the salmon industry. The company can deliver as many cans as it chooses. Then the salmon are caught. For each can by which Tinkan falls short of the salmon industrys needs, the company pays the industry a 2 penalty. Cans cost Tinkan 1 to produce and are sold by Tinkan for 2 per can. If any cans are left over, they are returned to Tinkan and the company reimburses the industry 2 for each extra can. These extra cans are put in storage for next year. Each year a can is held in storage, a carrying cost equal to 20% of the cans production cost is incurred. It is well known that the number of salmon harvested during a year is strongly related to the number of salmon harvested the previous year. In fact, using past data, Tinkan estimates that the harvest size in year t, Ht (measured in the number of cans required), is related to the harvest size in the previous year, Ht1, by the equation Ht = Ht1et where et is normally distributed with mean 1.02 and standard deviation 0.10. Tinkan plans to use the following production strategy. For some value of x, it produces enough cans at the beginning of year t to bring its inventory up to x+Ht, where Ht is the predicted harvest size in year t. Then it delivers these cans to the salmon industry. For example, if it uses x = 100,000, the predicted harvest size is 500,000 cans, and 80,000 cans are already in inventory, then Tinkan produces and delivers 520,000 cans. Given that the harvest size for the previous year was 550,000 cans, use simulation to help Tinkan develop a production strategy that maximizes its expected profit over the next 20 years. Assume that the company begins year 1 with an initial inventory of 300,000 cans.Ralph Dodd, a concessionaire for the local ballpark, has developed a table of conditional values for the various alternatives (stocking decision) and states of nature (size of the crowd). LARGE AVERAGE SMALL PROBABILITY .3 .5 .2 ALTERNATIVE 1 9,000 12,000 -2,000 ALTERNATIVE 2 22,000 6,000 6,000 ALTERNATIVE 3 15,000 12,000 5,000 The probabilities associated with the states of nature are 0.30 for a large crowd, 0.50 for an average crowd, and 0.20 for a small crowd. a) The opportunity cost for choosing Alternative 2 in the presence of a large crowd is: b) The minimum expected opportunity loss is: c) The maximum amount of money that Ralph should be willing to pay for the perfect information is:
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- Alternative Alternative 1 Alternative 2 Alternative 3 State of Nature Outcome 1 ($) 800 500 700 0.62 Probability according to the payoff table? OEMV (Alternative 1) = $900 EMV (Alternative 3) is the highest EMV EMV (Alternative 2) = EMV (Alternative 3) EMV (Alternative 1) is the highest EMV Outcome 2 ($) 1000 1200 900 0.38 Which of the following statements is correctPhillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a "super-event" that might shut down all suppliers at the same time at least 2 weeks is 3%. Such a total shutdown would cost the company approximately $480,000. He estimates the "unique-event" risk for any of the suppliers to be 5%. Assuming that the marginal cost of managing an additional supplier is $16,000 per year, how many suppliers should Witt Input Devices use? Assume that up to three nearly identical local suppliers are available. Find the EMV for alternatives using 1, 2, or 3 suppliers. EMV(1)=$54,40054,400 (Enter your response rounded to the nearest whole number.) EMV(2)= ? $ (Enter your response rounded to the nearest whole number.) EMV(3)= ? $ (Enter your response…Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a "super-event" that might shut down all suppliers at the same time at least 2 weeks is 2%. Such a total shutdown would cost the company approximately $480,000. He estimates the "unique-event" risk for any of the suppliers to be 5%. Assuming that the marginal cost of managing an additional supplier is $14,800 per year, how many suppliers should Witt Input Devices use? Assume that up to three nearly identical local suppliers are available. Find the EMV for alternatives using 1, 2, or 3 suppliers. EMV(1) = $ whole number.) EMV (2)=$_ EMV(3)=$ (Enter your response rounded to the nearest Based on the EMV value, the best choice to use is... a. one supplier b. two suppliers