STATISTICS F/BUSINESS+ECONOMICS-TEXT
13th Edition
ISBN: 9781305881884
Author: Anderson
Publisher: CENGAGE L
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Question
Chapter 21.2, Problem 1E
a.
To determine
Construct a decision tree for the problem.
b.
To determine
Compute the optimal decision using the
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The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:
State of Nature
Decision Alternative S1
S2 S3
di
250 100 100
d2
200 100 150
The probabilities for the states of nature are P(s1) = 0.45, P(s2) = 0.25, and P(53) = 0.3.
(a) What is the optimal decision strategy if perfect information were available?
S1 : - Select your answer - V
S2
Select your answer -
S3 : - Select your answer - V
(b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place.
(c) Using the expected value approach, what is the recommended decision without perfect information?
- Select your answer - v
What is its expected value? If required, round your answer to one decimal place.
(d) What is the expected value of perfect information? If required, round your answer to one decimal place.
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.
The owner of Catamount Ice Cream needs to decide which size shop to rent in a new
strip mall. He estimates that monthly profits will vary with demand for ice cream as
follows:
High
Demand Demand
Low
Size of
Shop
Large
1,000
1,300
900
1,400
Medium
Small
800
1,500
He feels there is a 40% chance that demand will be low and a 60% chance that
demand will be high. He'll use a decision tree to help him decide what to do. When
he draws his decision tree, how many circles will there be?
Chapter 21 Solutions
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Ch. 21.2 - Prob. 1ECh. 21.2 - A decision maker faced with four decision...Ch. 21.2 - Hudson Corporation is considering three options...Ch. 21.2 - Myrtle Air Express decided to offer direct service...Ch. 21.2 - The distance from Potsdam to larger markets and...Ch. 21.2 - Seneca Hill Winery recently purchased land for the...Ch. 21.2 - The Lake Placid Town Council has decided to build...Ch. 21.3 - Consider a variation of the PDC decision tree...Ch. 21.3 - A real estate investor has the opportunity to...Ch. 21.3 - Dante Development Corporation is considering...
Ch. 21.3 - Hales TV Productions is considering producing a...Ch. 21.3 - Martins Service Station is considering entering...Ch. 21.3 - Lawsons Department Store faces a buying decision...Ch. 21.4 - Suppose that you are given a decision situation...Ch. 21.4 - In the following profit payoff table for a...Ch. 21.4 - To save on expenses, Rona and Jerry agreed to form...Ch. 21.4 - The Gorman Manufacturing Company must decide...Ch. 21 - An investor wants to select one of seven mutual...Ch. 21 - Warren Lloyd is interested in leasing a new car...Ch. 21 - Hemmingway, Inc. is considering a 50 million...Ch. 21 - Embassy Publishing Company received a six-chapter...Ch. 21 - Lawsuit Defense Strategy John Campbell, an...
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Similar questions
- Rick Miller has just opened a new bakery in Frisco, Colorado, called Morning Fresh. In performing an economic analysis, Rick has determined that the marginal cost or loss for each dozen doughnuts sold is $4. The marginal profit is estimated to be $2.75 per dozen doughnuts. At this time, Rick is considering stocking 10, 15, 20, 25 or 30 dozen doughnuts. The probability of selling 10 dozen doughnuts is 10%. The chance of selling 15 Dozen doughnuts is 20%. There is a 30% chance that Morning Fresh will sell either 20 or 25 dozen doughnuts. Finally, there is a 10% chance of selling 30 dozen doughnuts, which is considered by Rick to be the most that Morning Fresh would be able to accommodate. What is your recommendation to Rick ?arrow_forwardFor the year 2017, 90% adults in the U.S. population aged 25 and older had completed high school. The attainment of a bachelor’s degree or higher for the same population stood at 34%. Assuming, that one must complete their high school before studying for their bachelor's, with H denoting those who have completed high school and B those who have completed their bachelors, draw a decision tree to help you find the following: P(H) (B|H) P (H and B) P (Hand B’) Source: High School Completion Rate Is Highest in U.S. Historyarrow_forwardThe following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Excel File: data20-01.xls States of Nature Dicision Alternative 81 82 83 250 100 25 da 100 100 75 a. Construct a decision tree for this problem. $1 82 $3 81 da 82 b. Suppose that the decision maker obtains the probabilities P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. Use the expected value approach to %3D the optimal decision. EV(dı) = (to 1 decimal) %3D EV(d2) = %3D The optimal decision is Select your answer- v 00arrow_forward
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