Consider the following decision matrix presenting net profit/loss estimates regarding an investment project: DEMAND LOW 30 10 -50 EQUIPMENT USED Small Medium Large MEDIUM 40 60 30 HIGH 50 60 120 1. Considering that the probabilities applicable to demand are not known, show the decision recommendations from the points of view of MXMX; MXMN; REALISM at Alpha = .6; EQL LIKE'HD; and MIN. REGRETS. Do you rn? Which equipment would you choose? Explain.
Consider the following decision matrix presenting net profit/loss estimates regarding an investment project: DEMAND LOW 30 10 -50 EQUIPMENT USED Small Medium Large MEDIUM 40 60 30 HIGH 50 60 120 1. Considering that the probabilities applicable to demand are not known, show the decision recommendations from the points of view of MXMX; MXMN; REALISM at Alpha = .6; EQL LIKE'HD; and MIN. REGRETS. Do you rn? Which equipment would you choose? Explain.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.2: Elements Of Decision Analysis
Problem 2P
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![Consider the following decision matrix presenting net profit/loss estimates regarding an investment project:
DEMAND
LOW
30
10
- 50
EQUIPMENT USED
1. Considering that the probabilities applicable to demand are not known, show the decision recommendations
from the points of view of MXMX; MXMN; REALISM at Alpha = .6; EQL LIKE'HD; and MIN. REGRETS. Do you
see a pattern? Which equipment would you choose? Explain.
2. Consider now that the probabilities for demand being low, medium and high have been calculated as .25, .30,
and .45, respectively. By using a decision tree, find the expected value (XBAR), the standard deviation (SIGMA),
and the coefficient of variation (CoV) for each size of equipment. Which size of equipment would you recommend
on the basis of the three statistics that you calculated?
DMUU:
3. Referring to the Z-Table, calculate the probability that each alternative (each different equipment) will turn out
at least a $50 profit? What is the likelihood that each alternative will produce a profit BETWEEN $45 and $70?
Perfect Optimism:
Perfect Pessimism
Optimism at a=
Be sure to show work, indicate the recommended alternative each time, provide a summary table (see below),
and support your final statement with a reason.
Letter & Value
Equal Likelihood:
Minimizing Regret:
Small
Medium
Large
Overall DMUU:
DMUR: Results
A
B
C
Be Sure
Xbar
To Support
(Give Reasons!)
Sigma
MEDIUM
40
60
30
Reason
Your
COV
Answers
HIGH
50
60
120
Normal Dist.
%
(Give
Reasons!)
Normal Dist.
%
(Give
Reasons!)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd2b9aba3-285f-4c9c-b7e8-8cec0222acbb%2Fd4ffe444-a459-4d45-b8b9-1111bf89a7d3%2Fnrod657_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the following decision matrix presenting net profit/loss estimates regarding an investment project:
DEMAND
LOW
30
10
- 50
EQUIPMENT USED
1. Considering that the probabilities applicable to demand are not known, show the decision recommendations
from the points of view of MXMX; MXMN; REALISM at Alpha = .6; EQL LIKE'HD; and MIN. REGRETS. Do you
see a pattern? Which equipment would you choose? Explain.
2. Consider now that the probabilities for demand being low, medium and high have been calculated as .25, .30,
and .45, respectively. By using a decision tree, find the expected value (XBAR), the standard deviation (SIGMA),
and the coefficient of variation (CoV) for each size of equipment. Which size of equipment would you recommend
on the basis of the three statistics that you calculated?
DMUU:
3. Referring to the Z-Table, calculate the probability that each alternative (each different equipment) will turn out
at least a $50 profit? What is the likelihood that each alternative will produce a profit BETWEEN $45 and $70?
Perfect Optimism:
Perfect Pessimism
Optimism at a=
Be sure to show work, indicate the recommended alternative each time, provide a summary table (see below),
and support your final statement with a reason.
Letter & Value
Equal Likelihood:
Minimizing Regret:
Small
Medium
Large
Overall DMUU:
DMUR: Results
A
B
C
Be Sure
Xbar
To Support
(Give Reasons!)
Sigma
MEDIUM
40
60
30
Reason
Your
COV
Answers
HIGH
50
60
120
Normal Dist.
%
(Give
Reasons!)
Normal Dist.
%
(Give
Reasons!)
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