Decision Making

Quantitative Techniques for ManagementSolution for chapter No.3

The following file contains the answer of:

• Question No. 3-17: Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil Because of competition. His alternatives are shown in the following table:
• Question No. 3-18: Although Ken Brown (discussed in Problem 3-17) is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information from Problem 3-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?
• Question No. 3-19: The Lubricant is an expensive oil newsletter to which many oil giants subscribe, including Ken Brown (see Problem 3-17 for details). In the last issue, the letter described how the demand for oil products would be extremely high. Apparently, the American consumer will continue to use oil products even if the price of these products doubles. Indeed, one of the articles in the Lubricant states that the chances of a favorable market for oil products was 70%, while the chance of an unfavorable market was only 30%. Ken would like to use these probabilities in determining the best decision. (a) What decision model should be used?(b) What is the optimal decision? (c) Ken believes that the $300,000 figure for the Sub 100 with a favorable market is too high. How much lower would this figure have to be for Ken to change his decision made in part (b)?
• Question No. 3-20: Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Mickey is considering:
• Question No 3-21: Develop an opportunity loss table for the investment problem that Mickey Lawson faces in Problem 3-20. What decision would minimize the expected opportunity loss? What is the minimum EOL?
• Question No. 3-22: Allen young has always been proud of his personal investment strategies and has done very well over the past several years. He invest primarily in the stock market. Over the past several months, however, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Allen to have his money in the bank than in the market. During the next year, Allen must decide whether to invest $10000 in the stock market or in certificate of deposit at an interest rate of 9%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all --in other words, the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.2, and he wishes to maximize his long run average return. (a) Develop a decision table for this problem. (b) What is the best decision?
• Question No.3-23: In problem 3-22 you helped Allen young determine the best investment strategy. Now, young is thinking about paying for a stock market newsletter could predict very accurately whether the market would be good, fair, or poor. Then, based on these prediction, Allen could make better investment decisions. (a) What is the most that Allen would be willing to pay for a newsletter? (b) Young now believes that a good market will give a return of only 11% instead of 14%. Will this information change the amount that Allen would be willing to pay for the newsletter? If your answer is yes, determine the most that Allen would be willing to pay, given this new information.
• Question No.3-24: Today's electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Phyllis Weinberger, who is responsible for advising the president of Today's Electronics on electronics manufacturing equipment, has developed the following table concerning a proposed facility. 
• Question No. 3-28: Even though independent gasoline stations have been having a difficult time. Susan Solomon has been thinking about starting her own independent gasoline station. Susan's problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis. Susan developed the following table: For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000.  (a) Develop a decision table for this decision.  (b) What is the maximax decision?  (c) What is the maximin decision? (d) What is the equally likely decision? (e) What is the criterion of realism decision? Use a value of 0.8. (f) Develop an opportunity loss table. (g) What is the minimax regret decision? 

Click the Following link to download Word file

DOWNLOAD LINK

Also See: