A plant manager is considering buying additional stamping machines to accommodate increasing demand.

A plant manager is considering buying additional stamping machines to accommodate increasing demand.

Applied Decision Methods Homework

1. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

What is the Expected Value WITH Perfect Information (EVwPI)?

2. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

Which alternative should be chosen using the expected monetary value (EMV) criterion?

3. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Using the information above, which alternative should be chosen based on the Laplace criterion?

4. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

What is the expected value under perfect information (EVPI)?

5. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Using the information above, which alternative should be chosen based on the maximax criterion?

6. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Using the information above, which alternative should be chosen based on the minimax regret criterion?

7. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Using the information above, which alternative should be chosen based on the criterion of realism with alpha = 0.8?

8. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected
Buy 1 machine $10 $5
Buy 2 machines $30 $4
Buy 3 machines $40 $2

Using the information above, which alternative should be chosen based on the maximin criterion?

Answer preview A plant manager is considering buying additional stamping machines to accommodate increasing demand.

A plant manager is considering buying additional stamping machines to accommodate increasing demand.

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