Consider the decision tree'below. You are at the starting decision node DO (shown in the orange color). Assumeall paths and decisions occur within a 1-year time horizon, so that no discounting is necessary. There are dollarinvestments, 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, $300.9D3Investment0.4100S-500.10.650DIS-80500900.1D1500$-8090Value $0.3150$-250.3-300.4750.5200D2 ES-30-0.5-100$-3550O a. AO b. BO c. CO d. DO e. EO f. F

Answered: Consider the decision tree'below. You…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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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?
Harley, an ice-cream vendor, purchases each pint of ice-cream for $7 and sells for $20 each. At the end of the week, the unsold ice-cream can be salvaged for $2 each. From past experience, Harley has estimated the sales probabilities as below. What is the optimal number of pints Harley should purchase? Number of Ice-creams Sold, Probability 1 = 0.05, 2 = 0.1, 3 = 0.2 , 4 = 0.25, 5 = 0.15, 6 = 0.1, 7 = 0.08, 8 = 0.07
Mr. Smith is a rentier, he lives on renting apartments. However, these days he has to sell one of his apartments to get a big money. He hesitates which of three apartments of his to sell. Help Mr. Smith to make the right decision if you know the following: The present prices per m2 in the three locations equal: A) 4000, B) 5000, C) 6000 goldies, respectively. However, the long-run prices of those real estates are: A) 5000, B) 6000, and C) 7000 goldies, whereas the respective standard deviations are A) 400, B) 500, and C) 250 goldies.
Assume that the Wisconsin Cheese Factory currently operates a large facility in Madison, WI. The owner, however, is concerned about concentration of risk and has decided to open up two new facilities to lessen that concentration, one in St. Cloud, MN, and the other in Iowa City, IA. Total production, while slightly less profitable overall because of additional operational costs, remains the same, with 1/3 at each location. This action is an example of _______. profit maximization loss reduction loss prevention risk avoidance
What is the best choice of the crop given a constraint of 1000 acres?
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.
A store is evaluating two options: expand to a new location stay and do nothing in current place for the next five years The decision process includes the following: Moving to the new site: would cost $500,000 annual returns with strong growth = $3 million; with weak growth = $2 million Doing nothing: annual returns with strong growth = $2 million; with weak growth = $1.5 million Strong growth has a 70% probability and operating costs for all other options are equal. Draw a decision tree of the problem and determine the best solution with highest expected value.
Monica and Isabel are roommates who, on this particular Saturday morning, are trying to decide what scarf to wear. Each has a Burberry scarf (which we’ll denote B), a tan scarf (denoted T), and a mauve scarf (denoted M). They care about the scarf but also about whether they end up wearing the same or different scarves. The preference ordering (from best to least preferred outcome) for Monica is: (1) she wears B and Isabel wears T or M; (2) she wears T and Isabel wears B or M; (3) she wears B and Isabel wears B; (4) she wears T and Isabel wears T: (5) she wears M and Isabel wears M; and (6) she wears M and Isabel wears B or T. Isabel’s preference ordering is: (1) she wears T and Monica wears B or M; (2) she wears M and Monica wears B or T; (3) she wears T and Monica wears T; (4) she wears M and Monica wears M; (5) she wears B and Monica wears B; and (6) she wears B and Monica wears T or M. Applying the IDSDS, which scarves will be worn?
A project faces uncertainty about the number of users of the service to be provided. It might be 10, 20, or 40 with probabilities 0.3, 0.5, and 0.2, respectively. There are two options, A and B. Under option A, the value per user is $10. Under option B, the value per user is $5 with probability 0.4 and otherwise $20. Assume the number of users and the value per user under option A are independent. Option A costs $100 and option B costs $250. a. Set up the table b. What are the expected values for each option? c. What is the value of perfect information before the decision is made? d. Suppose the decision maker could, for a price, determine whether value per user would be 5 or 20 under option B, tough you would learn nothing about the number of users. What is the value of that information?
A store is evaluating two options: expand to a new location stay and do nothing in current place for the next five years The decision process includes the following: Moving to the new site: would cost $500,000 annual returns with strong growth = $3 million; with weak growth = $2 million Doing nothing: annual returns with strong growth = $2 million; with weak growth = $1.5 million Strong growth has a 70% probability and operating costs for all other options are equal. Draw a decision tree of the problem and determine the best solution with highest expected value. You can draw the decision tree and solution in either a) Excel or b) by hand, and then upload the file for this assignment.
Problem 4-17 Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. The decision tree is shown in Figure 4.16. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is…
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?

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