#17FAVORABLE UNFAVORABLEMARKET MARKETEQUIPMENT ( $) ($)Sub 100 300,000 –200,000Oiler J 250,000 –100,000Texan 75,000 –18,000For example, if Ken purchases a Sub 100 and ifthere is a favorable market, he will realize a profitof $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. ButKen has always been a very optimistic decisionmaker.(a) What type of decision is Ken facing?(b) What decision criterion should he use?(c) What alternative is best?#18Although Ken Brown (discussed in Problem 3-17) is the principal owner of Brown Oil, his brother Bob iscredited with making the company a financial success. Bob is vice president of finance. Bob attributeshis success to his pessimistic attitude about business and the oil industry. Given the information fromProblem 3-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bobuse, and what alternative will he select?#24Today’s Electronics specializes in manufacturing modern electronic components. It also builds theequipment that produces the components. Phyllis Weinberger, who is responsible for advising thepresident of Today’s Electronics on electronic manufacturing equipment, has developed the followingtable concerning a proposed facility:PROFIT ($) STRONG FAIR POOR MARKET MARKET MARKETLarge facility 550,000 110,000 –310,000Medium-sized facility 300,000 129,000 –100,000Small facility 200,000 100,000 –32,000No facility 0 0 0 (a) Develop an opportunity loss table.(b) What is the minimax regret decision?#25Brilliant Color is a small supplier of chemicals and equipment that are used by some photographic storesto process 35mm film. One product that Brilliant Color supplies is BC-6. John Kubick, president ofBrilliant Color, normally stocks 11, 12, or 13 cases of BC-6 each week. For each case that John sells, hereceives a profit of $35. Like many photographic chemicals, BC-6 has a very short shelf life, so if a case isnot sold by the end of the week, John must discard it. Since each case costs John $56, he loses $56 forevery case that is not sold by the end of the week. There is a probability of 0.45 of selling 11 cases, aprobability of 0.35 of selling 12 cases, and a probability of 0.2 of selling 13 cases.(a) Construct a decision table for this problem. Include all conditional values and probabilities in thetable.(b) What is your recommended course of action?(c) If John is able to develop BC-6 with an ingredient that stabilizes it so that it no longer has to bediscarded, how would this change your recommended course of action?

Question

#17FAVORABLE              UNFAVORABLEMARKET                    MARKETEQUIPMENT (   $)           ($)Sub 100       300,000 –200,000Oiler J         250,000 –100,000Texan             75,000 –18,000For example, if Ken purchases a Sub 100 and ifthere is a favorable market, he will realize a profitof $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. ButKen has always been a very optimistic decisionmaker.(a) What type of decision is Ken facing?(b) What decision criterion should he use?(c) What alternative is best?#18Although Ken Brown (discussed in Problem 3-17) is the principal owner of Brown Oil, his brother Bob iscredited with making the company a financial success. Bob is vice president of finance. Bob attributeshis success to his pessimistic attitude about business and the oil industry. Given the information fromProblem 3-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bobuse, and what alternative will he select?#24Today’s Electronics specializes in manufacturing modern electronic components. It also builds theequipment that produces the components. Phyllis Weinberger, who is responsible for advising thepresident of Today’s Electronics on electronic manufacturing equipment, has developed the followingtable concerning a proposed facility:PROFIT ($)                                            STRONG               FAIR                    POOR                                               MARKET            MARKET             MARKETLarge facility                      550,000                 110,000         –310,000Medium-sized facility      300,000              129,000          –100,000Small facility                      200,000               100,000            –32,000No facility                                  0                              0                            0 (a) Develop an opportunity loss table.(b) What is the minimax regret decision?#25Brilliant Color is a small supplier of chemicals and equipment that are used by some photographic storesto process 35mm film. One product that Brilliant Color supplies is BC-6. John Kubick, president ofBrilliant Color, normally stocks 11, 12, or 13 cases of BC-6 each week. For each case that John sells, hereceives a profit of $35. Like many photographic chemicals, BC-6 has a very short shelf life, so if a case isnot sold by the end of the week, John must discard it. Since each case costs John $56, he loses $56 forevery case that is not sold by the end of the week. There is a probability of 0.45 of selling 11 cases, aprobability of 0.35 of selling 12 cases, and a probability of 0.2 of selling 13 cases.(a) Construct a decision table for this problem. Include all conditional values and probabilities in thetable.(b) What is your recommended course of action?(c) If John is able to develop BC-6 with an ingredient that stabilizes it so that it no longer has to bediscarded, how would this change your recommended course of action?

Accepted Answer

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