Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
12th Edition
ISBN: 9780134741062
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter D, Problem 2DQ
Summary Introduction
Interpretation: The reasoning behind modifying the optimal solution from mathematical models in view of the other non-quantifiable and/or judgmental business information in the situation should be determined.
Concept Introduction: The mathematical models and solutions are based on the precise equations which can be formed. However, business does not operate in the oasis of exactness of mathematics. Such optimal decisions, therefore, are required to be moderated with other factors (especially judgmental) present in the situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are given the following payoff table (in units of thousands of
dollars) for a decision analysis problem:
S1
220
S2
170
S3
A1
110
A2
200
150
180
Prior Probability
0.5
0.4
0.1
(a) Which alternative should be chosen under the maximin payoff
criterion?
(b) Which alternative should be chosen under the maximum likelihood
criterion?
(c)Which alternative should be chosen under Bayes' decision rule?
3 II |
Here are the changes to the original problem and the revised conditions for this decision-making problem:
With a favorable market, John Thompson thinks a large facility would result in a net profit of $195,000 to his
firm.
If the market is unfavorable, the construction of a large facility would result in $185,000 net loss.
A small plant would result in a net profit of $110,000 in a favorable market, but a net loss of $25,000 would
occur if the market was unfavorable.
Doing nothing would result in $0 profit in either market conditions.
a) Create a decision table,
b) What is your recommendation if you would apply the Maximax criterion (Optimistic)? Follow the guidance
from your textbook and create a table.
c) What is your recommendation if you would apply the Maximin Criterion (Pessimistic)? Follow the guidance
from your textbook and create a table.
d) What is your recommendation if you would apply the Criterion of Realism (Hurwicz Criterion) with a
coefficient of realism a =…
A financial institution is considering investing in a portfolio of stocks. How can decision theory guide the institution in selecting the optimal mix of stocks based on expected returns and risk preferences?
Chapter D Solutions
Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
Knowledge Booster
Similar questions
- Sam is starting a 501C small animal rescue, All Creatures Animal Reserve, and needs help understanding her options for fund use. How would you explain to Sam her options for fund allocation as it would pertain to her non- profit small animal rescue? Here are some details regarding her rescue: 5 acres of land Volunteers only, no paid employees Board of directors with 3 membersarrow_forwardState in which decision environment is linear programming most suited .arrow_forward1. Explain the meaning of the expected value of perfect information (EVPI) in this problem. Based on the results of (iii) and (iv), which investment would you choose? 2. Compute the coefficient of variation, the return-to-risk ratio (RTRR) for each investment. Based on (vii) and (viii), what investment would you choose? Compare the results of (vi) and (ix) and explain any differencesarrow_forward
- Many decision problems have the following simplestructure. A decision maker has two possible decisions,1 and 2. If decision 1 is made, a sure cost of c isincurred. If decision 2 is made, there are two possibleoutcomes, with costs c1 and c2 and probabilities p and1 2 p. We assume that c1 , c , c2. The idea is thatdecision 1, the riskless decision, has a moderate cost,whereas decision 2, the risky decision, has a low costc1 or a high cost c2.a. Calculate the expected cost from the riskydecision.b. List as many scenarios as you can think of thathave this structure. (Here’s an example to get youstarted. Think of insurance, where you pay a surepremium to avoid a large possible loss.) For eachof these scenarios, indicate whether you wouldbase your decision on EMV or on expected utility.arrow_forwardUse excel to make the calculations (show formulas used in excel) and be sure to identify your answer, including units. FloorsRUs is considering new locations for its manufacturing plants. Costs for constructing a new facility in Huntsville are $1,100,000 and the company estimates that for every product from its new line, there would be an additional cost of $3. If the company were to locate in Hays, the new facility would cost $1,800,000 and each product would incur a $2 incremental cost. The company plans to sell the products to retailers for $7. What is the break-even point for each location? At what volume is the point of indifference? At what forecasted volumes should FloorsRUs select Huntsville as their new manufacturing location and what volumes should the company select Hays and why?arrow_forwardProblem #4 - Jasper Inc. would like you to provide consulting services and provide recommendation on building a new assembly facility for air conditioning units in Florida. Jasper's initial assessment indicates the following conditions for this decision-making problem: With a favorable market in Florida, Jasper thinks that a large facility would result in a net profit of $200,000 to his firm. If the market is unfavorable in Florida, the construction of a large facility would result in $190,000 net loss. - A small facility would result in a net profit of $100,000 in a favorable market, but a net loss of $20,000 would occur if the market was unfavorable. Doing nothing would result in $0 profit in either market conditions. a) Create a decision table for this problem. b) What is your recommendation if y would apply the Maximax criterion (Optimistic)? C What is your recommendation if you would apply the Criterion of Realism (Hurwicz Criterion) with a erricient of realism a = 0.9? d) What is…arrow_forward
- Please pick a specialized book that interests you and point to 4 examples that contain numerical data that can be used to make decisions under uncertainty.(a) Please list each item in each example.(b) Please identify (1) decision maker; (2) alternatives; (3) uncertainties in each example.arrow_forwardEdwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, whereas the advanced model is faster but costs more. Profitability will depend on future demand. The following table presents an estimate of profits over the next three years. Decision Basic model Advanced model Fill in the table below for maximum and minimum profit payoffs under each model. Round your answers to the nearest dollar. Decision alternative Basic model Advanced model $ Opportunity Loss Matrix Decision alternative Basic model Advanced model Maximum $ $ Low Minimum Calculate the amounts foregone by not adopting the optimal course of action for each possible demand level. Determine the maximum opportunity cost for each model. Fill in the table below. If your answer is zero, enter "0". Round your answers to the nearest dollar. Future events Medium $ $ High Low $70,000 $30,000 Demand Volume Maximum # Medium $120,000 $140,000 Given the uncertainty associated with the demand volume,…arrow_forwardThe following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Decision Alternative = d₁ d₂ States of Nature 51 230 80 $2 $3 80 5 80 55 Suppose that the decision maker obtained the probabilities P(S₁) = 0.65, P(s₂) = 0.15, and P(S3) = 0.20. Use the expected value approach to determine the optimal decision. EV(d₁) EV(d₂)arrow_forward
- Consider the decision tree'below. You are at the starting decision node DO (shown in the orange color). Assume all paths and decisions occur within a 1-year time horizon, so that no discounting is necessary. There are dollar investments, as shown, required at decision nodes D1 and D2. Which of the letters (shown in the red color) represents the optimal path maximizing the expected outcome value? Value, $ 30 0.9 D3 Investment 0.4 100 S-50 0.1 0.6 50 DI S-80 500 90 0.1 D1 500 $-80 90 Value $ 0.3 150 $-25 0.3 -30 0.4 75 0.5 200 D2 ES-30- 0.5 -100 $-35 50 O a. A O b. B O c. C O d. D O e. E O f. Farrow_forward2. Using the following table, perform ALL FIVE of the techniques for Decision Making under Uncertainty: Maximax, Maximin, Hurwicz Realism (a=0.7), LaPlace and Minimax Regret. You must show your work for obtaining the points. Large facility Medium-sized facility Small facility No facility STRONG MARKET 550,000 300,000 200,000 0 PROFIT (S) FAIR MARKET 110,000 129,000 100,000 0 POOR MARKET -310,000 -100,000 -32,000 0arrow_forwardSuppose we are interested in investing in one of three investment opportunities: d1, d2, or d3. The following profit payoff table shows the profits (in thousands of dollars) under each of the 3 possible economic conditions: s1, s2, and s3. Determine the best decision based on the optimistic decision making approach. d2 Od2 or d1 O d2 or d3 O di d3 Decision d1 d2 d3 State of Nature s2 28 17 40 s1 -5 19 3 s3 50 15 6arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,