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BUSINESS ANALYTICS MODULE A DE C I S I O N - MA K I N G TO O L S 265
The first station should be very large, with EMV = $55,000
(b) Maximax decision: very large station
(c) Maximin decision: small station
(d) Equally likely decision: very large station
(e)
END-OF-MODULE PROBLEMS
A.1
A.2
266 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.3 (a) EMV (large stock) = 0.3(22) + 0.5(12) + 0.2(–2) = 12.2
EMV (average stock) = 0.3(14) + 0.5(10) + 0.2(6) = 10.4
EMV (small stock) = 0.3(9) + 0.5(8) + 0.2(4) = 7.5
0.3(700)
= $60 + 250 + 210
= $520
Expected cost of part-timers = 0.2(0) + 0.5(350)
+ 0.3(1,000)
268 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.13 Note: All dollar values in $1,000s.
The recommended strategy (EMV = 71) is
(b) Based on the expected monetary value criterion,
Dwayne should elect to build a small plant.
(c) We can find the EVPI from the following:
◼ Expected value under certainty = (0.4)(400,000)
Copyright ©2014 Pearson Education, Inc.
270 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.19 More than one decision is involved, and the problem is
under risk, so use a decision tree approach:
Note: Payoffs and expected payoffs are in $1,000s.
Your advice should be to not gather additional information
and to build a large video section.
A.21 Solution approach: Decision tree, since problem is under
risk and has more than one decision:
Maximum expected profit: $33,000. Michael should wait 1 day.
BUSINESS ANALYTICS MODULE A DE C I S I O N - MA K I N G TO O L S 265
The first station should be very large, with EMV = $55,000
(b) Maximax decision: very large station
(c) Maximin decision: small station
(d) Equally likely decision: very large station
(e)
END-OF-MODULE PROBLEMS
A.1
A.2
266 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.3 (a) EMV (large stock) = 0.3(22) + 0.5(12) + 0.2(–2) = 12.2
EMV (average stock) = 0.3(14) + 0.5(10) + 0.2(6) = 10.4
EMV (small stock) = 0.3(9) + 0.5(8) + 0.2(4) = 7.5
0.3(700)
= $60 + 250 + 210
= $520
Expected cost of part-timers = 0.2(0) + 0.5(350)
+ 0.3(1,000)
268 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.13 Note: All dollar values in $1,000s.
The recommended strategy (EMV = 71) is
(b) Based on the expected monetary value criterion,
Dwayne should elect to build a small plant.
(c) We can find the EVPI from the following:
◼ Expected value under certainty = (0.4)(400,000)
Copyright ©2014 Pearson Education, Inc.
270 BUSINESS ANALYTICS MODULE A DE C I S I O N -M A K I N G TO O L S
A.19 More than one decision is involved, and the problem is
under risk, so use a decision tree approach:
Note: Payoffs and expected payoffs are in $1,000s.
Your advice should be to not gather additional information
and to build a large video section.
A.21 Solution approach: Decision tree, since problem is under
risk and has more than one decision:
Maximum expected profit: $33,000. Michael should wait 1 day.
