Modern Business Statistics with Microsoft Excel (MindTap Course List)
5th Edition
ISBN: 9781285433301
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams
Publisher: Cengage Learning
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Chapter 20.2, Problem 2E
a.
To determine
Compute the optimal solution using the expected value approach.
b.
To determine
Compute the optimal solution using the expected value approach if the entries in the payoff table are cost.
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Consider the following profit payoff table and probability assessments:
States of Nature
Decision Alternative
s1
s2
s3
s4
d1
14
9
10
5
P(s1)=
0.5
d2
11
10
8
7
P(s2)=
0.2
d3
9
10
10
11
P(s3)=
0.2
d4
8
10
11
13
P(s4)=
0.1
a. Use the expected value approach to determine the optimal solution.
b. If the entries in the payoff table are costs, determine the optimal decision using the expected value approach.
Hudson Corporation is considering three options for managing its data processing operation: continue with its own staff, hire an outside vendor to do the managing (referred to as outsourcing), or use a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:
a. If the demand probabilities are .2, .5,and .3, which decision alternative will minimize the expected cost of the data processing operation? What is the expected annual cost associated with your recommendation?
b. What is the expected value of perfect information?
1. A number of fast-food chains, after their success with offering their customers fresh salads, and in an effort to downplay the image of selling unhealthy food, began adding fresh fruit plates to their menus. At about the same time, and seemingly in direct conflict with this "healthy" strategy, several other fast-food chains began offering fat- and calorie-laden items to their menus. Compare these two widely different approaches, and predict the chances of each one's success. Name some other products that are popular, despite known health risks.
2. In wintry conditions, highway safety is improved by treating road surfaces with substances that will provide traction and/or melt snow and ice. Sand and rock salt are two widely used substances. Recently, a combination of beet juice and rock salt is being used in some parts of the country to treat road surfaces. Suppose you have been asked to provide a list of factors to consider for a switch from rock salt alone to using a combination of…
Chapter 20 Solutions
Modern Business Statistics with Microsoft Excel (MindTap Course List)
Ch. 20.2 - Prob. 1ECh. 20.2 - Prob. 2ECh. 20.2 - 3. Hudson Corporation is considering three options...Ch. 20.2 - 4. Myrtle Air Express decided to offer direct...Ch. 20.2 - 5. The distance from Potsdam to larger markets and...Ch. 20.2 - 6. Seneca Hill Winery recently purchased land for...Ch. 20.2 - 7. The Lake Placid Town Council has decided to...Ch. 20.3 - Consider a variation of the PDC decision tree...Ch. 20.3 - 9. A real estate investor has the opportunity to...Ch. 20.3 - Dante Development Corporation is considering...
Ch. 20.3 - 11. Hale’s TV Productions is considering producing...Ch. 20.3 - 12. Martin’s Service Station is considering...Ch. 20.3 - 13. Lawson’s Department Store faces a buying...Ch. 20.4 - Prob. 14ECh. 20.4 - 15. In the following profit payoff table for a...Ch. 20.4 - 16. To save on expenses, Rona and Jerry agreed to...Ch. 20.4 - 17. The Gorman Manufacturing Company must decide...Ch. 20 - Prob. 18SECh. 20 - 19. Warren Lloyd is interested in leasing a new...Ch. 20 - Hemmingway, Inc., is considering a $50 million...Ch. 20 - 21. Embassy Publishing Company received a...Ch. 20 - Case Problem Lawsuit Defense Strategy
John...
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