Chapter 05S – Decision Theory
*PV for profits ($000)
42. The maximax strategy would be:
43. The maximin strategy would be:
Chapter 05S – Decision Theory
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44. The minimax regret strategy would be:
45. If P(high) is .60, the choice for maximum expected value would be:
*PV for profits ($000)
Chapter 05S – Decision Theory
46. The maximax strategy would be:
47. The maximin strategy would be:
Chapter 05S – Decision Theory
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48. The minimax regret strategy would be:
49. If yes and no are equally likely, which alternative has the largest expected monetary
value?
*PV for profits ($000)
Chapter 05S – Decision Theory
50. The maximax strategy would be:
51. The maximin strategy would be:
Chapter 05S – Decision Theory
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52. The minimax regret strategy would be:
53. With equally likely states of nature, the alternative that has the largest expected monetary
value is:
The new owner of a beauty shop is trying to decide whether to hire one, two, or three
beauticians. She estimates that profits next year (in thousands of dollars) will vary with
demand for her services and has estimated demand in three categories low, medium and high
Chapter 05S – Decision Theory
54. If she uses the maximax criterion, how many beauticians will she decide to hire?
55. If she uses the Laplace criterion, how many beauticians will she decide to hire?
Chapter 05S – Decision Theory
56. If she uses the minimax regret criterion, how many beauticians will she decide to hire?
57. If she feels the chances of low, medium, and high demand are 50%, 20%, and 30%
respectively, what are the expected annual profits for the number of beauticians she will
decide to hire?
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58. If she feels the chances of low, medium, and high demand are 50%, 20%, and 30%
respectively, what is her expected value of perfect information?
The operations manager for a local bus company wants to decide whether he should purchase
a small, medium, or large new bus for his company. He estimates that the annual profits (in
$000) will vary depending upon whether passenger demand is low, moderate, or high, as
follows:
Chapter 05S – Decision Theory
59. If he uses the maximin criterion, which size bus will he decide to purchase?
60. If he uses the Laplace criterion, which size bus will he decide to purchase?
Chapter 05S – Decision Theory
61. If he uses the minimax regret criterion, which size bus will he decide to purchase?
62. If he feels the chances of low, moderate, and high demand are 30%, 30%, and 40%
respectively, what is the expected annual profit for the bus that he will decide to purchase?
Chapter 05S – Decision Theory
63. If he feels the chances of low, moderate, and high demand are 30%, 30%, and 40%
respectively, what is his expected value of perfect information?
The operations manager for a well-drilling company must recommend whether to build a new
facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000)
will vary with the amount of precipitation (rainfall) as follows:
64. If he uses the maximax criterion, which alternative will he decide to select?
Chapter 05S – Decision Theory
65. If he uses the Laplace criterion, which alternative will he decide to select?
66. If he uses the minimax regret criterion, which alternative will he decide to select?
Chapter 05S – Decision Theory
67. If he feels the chances of low, normal, and high precipitation are 30%, 20%, and 50%
respectively, what are expected long-run profits for the alternative he will select?
68. If he feels the chances of low, normal, and high precipitation are 30%, 20%, and 50%
respectively, what is his expected value of perfect information?
Chapter 05S – Decision Theory
The local operations manager for the Internal Revenue Service must decide whether to hire
one, two, or three temporary tax examiners for the upcoming tax season. She estimates that
net revenues (in thousands of dollars) will vary with how well taxpayers comply with the new
tax code just passed by Congress, as follows:
69. If she uses the maximin criterion, how many new examiners will she decide to hire?
70. If she uses the Laplace criterion, how many new examiners will she decide to hire?
Chapter 05S – Decision Theory
71. If she uses the minimax regret criterion, how many new examiners will she decide to
hire?
72. If she feels the chances of low, medium, and high compliance are 20%, 30%, and 50%
respectively, what are the expected net revenues for the number of assistants she will decide
to hire?
Chapter 05S – Decision Theory
73. If she feels the chances of low, medium, and high compliance are 20%, 30%, and 50%
respectively, what is her expected value of perfect information?
The construction manager for Acme Construction, Inc. must decide whether to build single–
family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary
with the population trend as follows:
74. If he uses the maximin criterion, which kind of dwellings will he decide to build?
Chapter 05S – Decision Theory
75. If he uses the Laplace criterion, which kind of dwellings will he decide to build?
76. If he uses the minimax regret criterion, which kind of dwellings will he decide to build?
Chapter 05S – Decision Theory
77. If he feels the chances of declining, stable, and growing population trends are 40%, 50%,
and 10%, respectively, which kind of houses will he decide to build?
78. If he feels the chances of declining, stable, and growing population trends are 40%, 50%,
and 10%, respectively, what is his expected value of perfect information?
Chapter 05S – Decision Theory
The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new
retail outlet. She estimates that monthly profits will vary with demand for her cookies as
follows:
79. If she uses the maximax criterion, what size outlet will she decide to lease?
80. If she uses the maximin criterion, what size outlet will she decide to lease?