The following payoff table shows the profit for a decision problem with two states of nature and two decision alternatives. Decision Alternative ď₂ d₂ State of Nature $₁ 12 6 $2 3 5 (a) Suppose P(s) = 0.2 and P(5₂) = 0.8. What is the best decision using the expected value approach? The best decision is --?-- with an expected value of (b) Perform sensitivity analysis on the payoffs for decision alternative d₁. Assume the probabilities are as given in part (a), and find the range of payoffs under states of nature s, and so that will keep the solution found in part (a) optimal. As long as the payoff for s₁ under d, is --?--♥ , then the solution found in part (a) will be optimal. As long as the payoff for S₂ under d₂ is --?--|| , then the solution found in part (a) will be optimal. Is the solution more sensitive to the payoff under state of nature s, or s₂? OS₂ O s
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- The Gorman 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): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value to recommend a decision.The Gorman 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 Low Demand Medium Demand High Demand Decision Alternative s1 s2 s3 Manufacture, d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. Use a decision tree to recommend a decision.Recommended decision: Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. EVPI: $ fill in the blank 3 A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(F | s1) = 0.10 P(U | s1) = 0.90 P(F | s2) = 0.40 P(U |…The Gorman 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 low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 Decision tree leading to market study/ prediction of favorable…
- 7. Consider the following decision table, which Joe Blackburn has developed for Vanderbilt Enterprises: States of Nature Decision Alternatives Probability: 0.35 0.25 0.40 Low Medium High A $35 $80 $65 B $85 $50 $70 C $55 $70 $75 D $70 $85 $65 E $70 $75 $85 Part 2 The alternative that provides Blackburn the greatest expected monetary value (EMV LOADING... ) is ▼ D E A B C The EMV for this decision is $_______(enter your answer as a whole number).The Gorman 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 low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 Compute the probabilities by completing the table Sate of…The Gorman 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 low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 A.Compute the probabilities by completing the table Sate of…
- A landlord can either lease for one or two years or sell offices outrightly for K100 million with payoffs as follows: Lease -100 50 150 Sell 100 100 100 The probability of rejecting is 30%, leasing for one year is 50% and for two years 20%. Required: What is the optimal decision strategy if perfect information were available? What is the expected value of perfect information? A decision maker is looking to minimising costs through three alternative decisions a1 , b2 and c3 under two states of nature/events S1 and S2 with S1 having a probability of 30% . For a1 payoffs for s1 K100 million and s2 K540 million For a2 payoff for s1 K150 million and s2 –K50 million For a3 payoff for s1 K350 million and s2 K320 million Required: Find EMV and recommend the course of action Find the…The Gorman 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 low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a.Use expected value to recommend a decision. b.Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.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
- Decision Tree Analysis. You are considering the decision to purchase a machine for internal production or to subcontract the work to an external source. The following information has been provided by your financial managers: Cost to purchase the machine—$35,000 Cost to subcontract the work—$5,000 Probability of a good market = 70% Probability of a poor market = 30% Reward if the prediction occurs: In the purchase machine decision good market scenario—$80,000; in the poor market scenario—$30,000 In the Subcontract decision good market scenario—$50,000; in the poor market scenario—$15,000 1. What is the expected value of the decision to purchase the machine?A decision tree is a graphic display of the decision process that indicates decision alternatives, states of nature and their respective probabilities, and payoffs for each combination of alternative and states of nature. O True O False * Previous Next ► MacBook Air 000 000 DD F7 セゴ F5 $ & レ 9 * 00Come up with a decision using each of the different criteria under conditions of uncertainty using the table below. The payoff values are expressed as LOSSES and alpha = 0.5 *a.)Which realism approach decision alternative has the maximum payoff? b.)What is the best equally likely decision to take? pcik from the choices -A at 45.5 -C at 61 -E at 53 -F at -54