You are given a payoff table: Positive market Negative market Probabililty 0.40 0.60 Alternatives Go 100 150 No Go 200 100 Based on these probabilities, a person would select the option "No Go". However, you have a concern about the accuracy of the probabilities. It can be stated that "No Go" is still the best alternative as long as the probability of option "Go" is at least

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…

For a given perishable product, a retailer pays $5 for each unit, then sells them for $10 each. At the end of the day, units not sold at the store are disposed of, and the retailer receives just $1 for each. Given the following probability distribution describing daily demand, how many units should be stocked? x    Prob. (Demand = x)   x    Prob. (Demand = x)  0     0.01                          7         0.18 1     0.02                          8         0.14 2     0.04                          9         0.09 3      0.07                        10        0.05 4     0.09                         11        0.02 5      0.12                        12        0.01 6       0.15                       13         0.01

The 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 = î

A manufacturing plant has reached full capacity. The company must build a second plant—eithersmall or large—at a nearby location. The demand is likely to be high or low. The probability of low demand is 0.4. If demand is​ low, the large plant has a present value of $6 million and the small​ plant, $9 million. If demand is​ high, the large plant pays off with a present value of $20 million and the small plant with a present value of only $11 million.​ However, the small plant can be expanded later if demand proves to be​ high, for a present value of $13 million.

A 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…

Johnson Chemicals is considering two options for itssupplier portfolio. Option I uses two local suppliers. Each hasa " unique-event" risk of 5%, and the probability of a " superevent"that would disable both at the same time is estimated to be1.5%. Option 2 uses two suppliers located in different countries.Each has a "unique-event" risk of 13%, and the probability of a"super-event" that would disable both at the same time is estimatedto be 0.2%.a) What is the probability that both suppliers will be disrupted using option I?b) What is the probability that both suppliers will be disrupted using option 2?c) Which option would provide the lowest risk of a total shutdown?

If in decision making a risk is a potential future event the odds of which can be calculated, then what is an uncertainty, and how is it like an emergency plan for say, evacuating in a fire storm?

If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 55,000 bushels.  The cost of pesticides is $20,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $10.00 with probability of 0.50 or it will be $12.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $11.00. What will be his total production cost if he uses pesticides?     a. $430,000.00   b. $470,000.00   c. $450,000.00   d. $660,000.00

Based on the following payoff table, answer the following: High Low 90 -10 70 40 Lease 60 55 Prior Probability 0.4 0.6 The maximum likelihood strategy is: Alternative Buy Rent O Lease. Rent. O Buy. O High. O Low.