Operations Management 5th Edition Canadian By William J. Stevenson - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Strategic Capacity Planning Student: ___________________________________________________________________________ 1. The term capacity is the upper limit on the workload an operating unit can handle. True False 2. …
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Operations Management 5th Edition Canadian By William J. Stevenson – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05 Strategic Capacity Planning
Student: ___________________________________________________________________________
| 1. | The term capacity is the upper limit on the workload an operating unit can handle.
True False |
| 2. | Capacity decisions are always long-term decisions.
True False |
| 3. | If a company produces a variety of outputs, capacity has to be expressed as several partial measures; no overall measure of capacity is possible.
True False |
| 4. | Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.
True False |
| 5. | Stating capacity in dollar amounts generally results in a consistent measure of capacity.
True False |
| 6. | Design capacity refers to the maximum output rate under ideal conditions.
True False |
| 7. | Design capacity refers to the maximum output rate possible given a product mix, operating hours, and machine maintenance.
True False |
| 8. | Efficiency is defined as the ratio of actual output to effective capacity.
True False |
| 9. | As utilization increases the number of jobs/people waiting in an operating system decreases.
True False |
| 10. | Facilities are a major factor influencing effective capacity.
True False |
| 11. | The more uniform the mix of products being produced, the more opportunity there is to increase the effective capacity of the system.
True False |
| 12. | Evaluation of capacity alternatives involves economic calculations only.
True False |
| 13. | As forecasts are usually only accurate for the short term, forecasts are not useful in long-term capacity decisions.
True False |
| 14. | Capacity increases are usually acquired in fairly large “chunks” rather than smooth increments.
True False |
| 15. | In break-even analysis, costs that vary directly with volume of output are referred to as fixed costs because they are fixed to the level of output.
True False |
| 16. | The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.
True False |
| 17. | Among the assumptions of break-even analysis is that the variable cost per unit remains the same regardless of quantity of output.
True False |
| 18. | Which is not true about long-term capacity?
|
| 19. | Long-term capacity decisions are important for which of the following reasons?
I. The impact they have on the ability to meet future demand.
|
| 20. | Capacity refers to the upper limit on the _______ an operating unit can handle.
|
| 21. | The maximum output rate under ideal conditions is:
|
| 22. | The maximum possible output rate given a product mix, scheduling difficulties, operating hours, and so on, is:
|
| 23. | Efficiency is defined as the ratio of:
|
| 24. | Utilization is defined as the ratio of:
|
| 25. | The ratio of actual output to effective capacity is:
|
| 26. | Throughput capacity for a productive unit measured as a rate is:
|
| 27. | Given the following information, the efficiency is:
Effective capacity = 80 units per day
|
| 28. | Given the following information, the efficiency is:
Effective capacity = 50 units per day
|
| 29. | Given the following information, the efficiency is:
Effective capacity = 20 units per day
|
| 30. | Which of the following is not a determinant of effective capacity?
|
| 31. | Considerations in forecasting long-term demand include:
I) identifying demand trends
|
| 32. | Which of the following is not a consideration for developing capacity alternatives?
|
| 33. | Seasonal variations are typically easier to deal with in capacity planning than random variations because seasonal variations tend to be:
|
| 34. | Production units have an optimal rate of output where:
|
| 35. | Installing capacity before an increase in demand occurs is referred to as:
|
| 36. | At the break-even point:
|
| 37. | An alternative will have fixed costs of $10,000 per month, variable costs of $50 per unit, and revenue of $70 per unit. The break-even point volume is:
|
| 38. | For fixed costs of $1,000, revenue per unit of $1, and variable cost per unit of $0.80, the break-even quantity is:
|
| 39. | Which of the following is not an accurate statement concerning break-even analysis?
|
| 40. | Which of the following is not an assumption of the break-even model?
|
| 41. | What is the break-even quantity for the following situation?
FC = $1,200 per week
|
| The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $150 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $200. |
| 42. | If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 35 cords per day, what would its utilization be?
|
| 43. | If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?
|
| 44. | What would the potential profit be if he were to split 4,000 cords of wood with this machine?
|
| 45. | How many cords of wood would he have to split with this machine to break even?
|
| 46. | How many cords of wood would he have to split with this machine to make a profit of $50,000?
|
| The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush, which she could then sell for $8 each. Variable costs would be $5 per rosebush. |
| 47. | If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the efficiency of her use of this land?
|
| 48. | If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year, respectively, and she expects to be 80% efficient in her use of this land, how many rosebushes does Rose plan to grow each year on this land?
|
| 49. | What would the profit be if she were to produce and sell 5,000 rose bushes?
|
| 50. | How many rose bushes would she have to produce and sell in order to break even?
|
| 51. | How many rose bushes would she have to produce and sell in order to make a profit of $6,000?
|
| A recruiter for a job placement agency is considering whether to pay $50,000 per year to lease a new recruiting facility in a prime location in Washington D. C. He estimates it will cost $50 per recruit to process the paperwork at this new location. He receives a $75 commission for each new recruit he processes. |
| 52. | If the office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually, respectively, and 6,000 recruits will be processed per year, what will be the utilization of the office space?
|
| 53. | If his office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually, respectively, and he plans to be 90% efficient in his use of this space, how many recruits does he plan to process per year?
|
| 54. | What would be his annual profit if he were to process 4,000 recruits per year at this new location?
|
| 55. | How many recruits would he have to process annually to break even at this new location?
|
| 56. | How many recruits would he have to process annually to make a profit of $100,000 at this new location?
|
| Doctor J. is considering purchasing a new blood analysis machine for $60,000. He estimates that he could charge $80.00 for an office visit to have a patient’s blood analyzed, while the variable cost of a blood analysis would be $30.00. |
| 57. | If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to perform 4,500 blood analyses each year, what will be the utilization of this machine?
|
| 58. | If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to be 80% efficient in his use of this machine, how many blood analyses does he plan to perform each year?
|
| 59. | What would be his profit if he were to perform 5,000 blood analyses?
|
| 60. | How many blood analyses would he have to perform in order to break even?
|
| 61. | How many blood analyses would he have to perform in order to make a profit of $50,000?
|
| 62. | The efficiency of a productive unit is 60%. The unit produces an average of 20 forklift trucks per day. Determine the effective capacity of the unit.
|
| 63. | The utilization of a machine is 50%. The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour. Find the efficiency of the machine.
|
| 64. | An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of output, and revenue of $55 per unit of output.
(i) Determine the break-even quantity.
|
| 65. | A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit. Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit. Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit. Revenue is expected to be $50 per unit.
(i) Which alternative has the lowest break-even quantity?
|
| 66. | A small business owner is contemplating the addition of another product line. Capacity increases and equipment will result in an increase in annual fixed costs of $50,000. Variable costs will be $25 per unit.
(i) What unit selling price must the owner obtain to break-even on a volume of 2,500 units a year?
|
| 67. | What is the anticipated utilization?
|
| 68. | What is the anticipated efficiency?
|
| 69. | What is the break-even quantity (produced and sold)?
|
| 70. | What are total revenues for the break-even quantity?
|
| 71. | What are total costs for the break-even quantity?
|
| 72. | What quantity would be required for a profit of $2,000?
|
| 73. | What profit (loss) would there be for a quantity of 27,000?
|
| 74. | What profit (loss) would there be for a quantity of 10,000?
|
Chapter 05 Strategic Capacity Planning Key
| 1. | The term capacity is the upper limit on the workload an operating unit can handle.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #1 Topic: 05-01 Capacity, Measures, Efficiency, Utilization, and Effective Capacity |
| 2. | Capacity decisions are always long-term decisions.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #2 Topic: 05-01 Capacity, Measures, Efficiency, Utilization, and Effective Capacity |
| 3. | If a company produces a variety of outputs, capacity has to be expressed as several partial measures; no overall measure of capacity is possible.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #3 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 4. | Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #4 Topic: 05-02 The Importance of Long-Term Capacity |
| 5. | Stating capacity in dollar amounts generally results in a consistent measure of capacity.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #5 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 6. | Design capacity refers to the maximum output rate under ideal conditions.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #6 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 7. | Design capacity refers to the maximum output rate possible given a product mix, operating hours, and machine maintenance.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #7 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 8. | Efficiency is defined as the ratio of actual output to effective capacity.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #8 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 9. | As utilization increases the number of jobs/people waiting in an operating system decreases.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #9 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 10. | Facilities are a major factor influencing effective capacity.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #10 Topic: 05-04 Factors Influencing Effective Capacity |
| 11. | The more uniform the mix of products being produced, the more opportunity there is to increase the effective capacity of the system.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #11 Topic: 05-04 Factors Influencing Effective Capacity |
| 12. | Evaluation of capacity alternatives involves economic calculations only.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #12 Topic: 05-05 Strategic Capacity Planning Process in Organizations |
| 13. | As forecasts are usually only accurate for the short term, forecasts are not useful in long-term capacity decisions.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #13 Topic: 05-05 Strategic Capacity Planning Process in Organizations |
| 14. | Capacity increases are usually acquired in fairly large “chunks” rather than smooth increments.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #14 Topic: 05-08 Major Considerations for Developing Capacity Alternatives |
| 15. | In break-even analysis, costs that vary directly with volume of output are referred to as fixed costs because they are fixed to the level of output.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #15 Topic: 05-10 Break-Even Analysis |
| 16. | The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #16 Topic: 05-10 Break-Even Analysis |
| 17. | Among the assumptions of break-even analysis is that the variable cost per unit remains the same regardless of quantity of output.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #17 Topic: 05-10 Break-Even Analysis |
| 18. | Which is not true about long-term capacity?
|
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #18 Topic: 05-02 The Importance of Long-Term Capacity |
| 19. | Long-term capacity decisions are important for which of the following reasons?
I. The impact they have on the ability to meet future demand.
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #19 Topic: 05-02 The Importance of Long-Term Capacity |
| 20. | Capacity refers to the upper limit on the _______ an operating unit can handle.
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #20 Topic: 05-01 Capacity, Measures, Efficiency, Utilization, and Effective Capacity |
| 21. | The maximum output rate under ideal conditions is:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #21 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 22. | The maximum possible output rate given a product mix, scheduling difficulties, operating hours, and so on, is:
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #22 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 23. | Efficiency is defined as the ratio of:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #23 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 24. | Utilization is defined as the ratio of:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #24 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 25. | The ratio of actual output to effective capacity is:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #25 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 26. | Throughput capacity for a productive unit measured as a rate is:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #26 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 27. | Given the following information, the efficiency is:
Effective capacity = 80 units per day
|
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #27 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 28. | Given the following information, the efficiency is:
Effective capacity = 50 units per day
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #28 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 29. | Given the following information, the efficiency is:
Effective capacity = 20 units per day
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #29 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 30. | Which of the following is not a determinant of effective capacity?
|
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #30 Topic: 05-04 Factors Influencing Effective Capacity |
| 31. | Considerations in forecasting long-term demand include:
I) identifying demand trends
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #31 Topic: 05-06 Forecasting Long-Term Demand |
| 32. | Which of the following is not a consideration for developing capacity alternatives?
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #32 Topic: 05-08 Major Considerations for Developing Capacity Alternatives |
| 33. | Seasonal variations are typically easier to deal with in capacity planning than random variations because seasonal variations tend to be:
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #33 Topic: 05-08 Major Considerations for Developing Capacity Alternatives |
| 34. | Production units have an optimal rate of output where:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #34 Topic: 05-08 Major Considerations for Developing Capacity Alternatives |
| 35. | Installing capacity before an increase in demand occurs is referred to as:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. Stevenson – Chapter 05 #35 Topic: 05-08 Major Considerations for Developing Capacity Alternatives |
| 36. | At the break-even point:
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #36 Topic: 05-10 Break-Even Analysis |
| 37. | An alternative will have fixed costs of $10,000 per month, variable costs of $50 per unit, and revenue of $70 per unit. The break-even point volume is:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #37 Topic: 05-10 Break-Even Analysis |
| 38. | For fixed costs of $1,000, revenue per unit of $1, and variable cost per unit of $0.80, the break-even quantity is:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #38 Topic: 05-10 Break-Even Analysis |
| 39. | Which of the following is not an accurate statement concerning break-even analysis?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #39 Topic: 05-10 Break-Even Analysis |
| 40. | Which of the following is not an assumption of the break-even model?
|
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #40 Topic: 05-10 Break-Even Analysis |
| 41. | What is the break-even quantity for the following situation?
FC = $1,200 per week
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #41 Topic: 05-10 Break-Even Analysis |
| The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $150 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $200. |
| Stevenson – Chapter 05 |
| 42. | If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 35 cords per day, what would its utilization be?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #42 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 43. | If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #43 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 44. | What would the potential profit be if he were to split 4,000 cords of wood with this machine?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #44 Topic: 05-10 Break-Even Analysis |
| 45. | How many cords of wood would he have to split with this machine to break even?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #45 Topic: 05-10 Break-Even Analysis |
| 46. | How many cords of wood would he have to split with this machine to make a profit of $50,000?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #46 Topic: 05-10 Break-Even Analysis |
| The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush, which she could then sell for $8 each. Variable costs would be $5 per rosebush. |
| Stevenson – Chapter 05 |
| 47. | If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the efficiency of her use of this land?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #47 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 48. | If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year, respectively, and she expects to be 80% efficient in her use of this land, how many rosebushes does Rose plan to grow each year on this land?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #48 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 49. | What would the profit be if she were to produce and sell 5,000 rose bushes?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #49 Topic: 05-10 Break-Even Analysis |
| 50. | How many rose bushes would she have to produce and sell in order to break even?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #50 Topic: 05-10 Break-Even Analysis |
| 51. | How many rose bushes would she have to produce and sell in order to make a profit of $6,000?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #51 Topic: 05-10 Break-Even Analysis |
| A recruiter for a job placement agency is considering whether to pay $50,000 per year to lease a new recruiting facility in a prime location in Washington D. C. He estimates it will cost $50 per recruit to process the paperwork at this new location. He receives a $75 commission for each new recruit he processes. |
| Stevenson – Chapter 05 |
| 52. | If the office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually, respectively, and 6,000 recruits will be processed per year, what will be the utilization of the office space?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #52 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 53. | If his office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually, respectively, and he plans to be 90% efficient in his use of this space, how many recruits does he plan to process per year?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #53 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 54. | What would be his annual profit if he were to process 4,000 recruits per year at this new location?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #54 Topic: 05-10 Break-Even Analysis |
| 55. | How many recruits would he have to process annually to break even at this new location?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #55 Topic: 05-10 Break-Even Analysis |
| 56. | How many recruits would he have to process annually to make a profit of $100,000 at this new location?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #56 Topic: 05-10 Break-Even Analysis |
| Doctor J. is considering purchasing a new blood analysis machine for $60,000. He estimates that he could charge $80.00 for an office visit to have a patient’s blood analyzed, while the variable cost of a blood analysis would be $30.00. |
| Stevenson – Chapter 05 |
| 57. | If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to perform 4,500 blood analyses each year, what will be the utilization of this machine?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #57 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 58. | If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to be 80% efficient in his use of this machine, how many blood analyses does he plan to perform each year?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #58 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 59. | What would be his profit if he were to perform 5,000 blood analyses?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #59 Topic: 05-10 Break-Even Analysis |
| 60. | How many blood analyses would he have to perform in order to break even?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #60 Topic: 05-10 Break-Even Analysis |
| 61. | How many blood analyses would he have to perform in order to make a profit of $50,000?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #61 Topic: 05-10 Break-Even Analysis |
| 62. | The efficiency of a productive unit is 60%. The unit produces an average of 20 forklift trucks per day. Determine the effective capacity of the unit.
Solving for effective capacity yields 33.33 forklift trucks per day. |
| Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #62 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 63. | The utilization of a machine is 50%. The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour. Find the efficiency of the machine.
First, solve for actual output using the utilization formula. Thus actual output = 35 units per hour. |
| Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #63 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 64. | An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of output, and revenue of $55 per unit of output.
(i) Determine the break-even quantity. FC = $60,000 per year |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #64 Topic: 05-10 Break-Even Analysis |
| 65. | A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit. Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit. Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit. Revenue is expected to be $50 per unit.
(i) Which alternative has the lowest break-even quantity? (ii) Profit = Q(rev – vc) – FC. Q = 10,000. A: $180,000; B: $180,000; C: $120,000. |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #65 Topic: 05-10 Break-Even Analysis |
| 66. | A small business owner is contemplating the addition of another product line. Capacity increases and equipment will result in an increase in annual fixed costs of $50,000. Variable costs will be $25 per unit.
(i) What unit selling price must the owner obtain to break-even on a volume of 2,500 units a year?
|
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #66 Topic: 05-10 Break-Even Analysis |
| Stevenson – Chapter 05 |
| 67. | What is the anticipated utilization?
80% |
| Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #67 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 68. | What is the anticipated efficiency?
90% |
| Difficulty: Medium Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. Stevenson – Chapter 05 #68 Topic: 05-03 Measuring Capacity and Two Related Performance Measures |
| 69. | What is the break-even quantity (produced and sold)?
[25,000 units] |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #69 Topic: 05-10 Break-Even Analysis |
| 70. | What are total revenues for the break-even quantity?
$40,000 |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #70 Topic: 05-10 Break-Even Analysis |
| 71. | What are total costs for the break-even quantity?
$40,000 |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #71 Topic: 05-10 Break-Even Analysis |
| 72. | What quantity would be required for a profit of $2,000?
28,334 units |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #72 Topic: 05-10 Break-Even Analysis |
| 73. | What profit (loss) would there be for a quantity of 27,000?
$1,200 |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #73 Topic: 05-10 Break-Even Analysis |
| 74. | What profit (loss) would there be for a quantity of 10,000?
$9,000 loss |
| Difficulty: Medium Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. Stevenson – Chapter 05 #74 Topic: 05-10 Break-Even Analysis |
Chapter 05 Strategic Capacity Planning Summary
| Category | # of Questions |
| Accessibility: Keyboard Navigation | 61 |
| Difficulty: Easy | 8 |
| Difficulty: Hard | 6 |
| Difficulty: Medium | 60 |
| Learning Objective: 05-01 Define capacity; explain the importance of long-term capacity; know how to measure capacity and understand two related performance measures; and describe factors influencing effective capacity. | 36 |
| Learning Objective: 05-02 Describe the strategic capacity planning process in organizations; know long-term demand patterns and calculate capacity requirements; and discuss major considerations for developing capacity alternatives. | 8 |
| Learning Objective: 05-03 Describe the break-even analysis approach for evaluating capacity alternatives; and use it to solve problems. | 30 |
| Stevenson – Chapter 05 | 79 |
| Topic: 05-01 Capacity, Measures, Efficiency, Utilization, and Effective Capacity | 3 |
| Topic: 05-02 The Importance of Long-Term Capacity | 3 |
| Topic: 05-03 Measuring Capacity and Two Related Performance Measures | 27 |
| Topic: 05-04 Factors Influencing Effective Capacity | 3 |
| Topic: 05-05 Strategic Capacity Planning Process in Organizations | 2 |
| Topic: 05-06 Forecasting Long-Term Demand | 1 |
| Topic: 05-08 Major Considerations for Developing Capacity Alternatives | 5 |
| Topic: 05-10 Break-Even Analysis | 30 |
Chapter 05S Decision Analysis
Student: ___________________________________________________________________________
| 1. | In decision theory, states of nature refer to a set of possible values for a random variable.
True False |
| 2. | Typically the choice to “do nothing” based on a preference to stick with the status quo is not considered in the list of possible alternatives for a decision.
True False |
| 3. | In order to use the expected value approach, one needs to determine the probabilities of future payoffs.
True False |
| 4. | The probabilities assigned to each state of nature are taken from the appropriate probability distribution tables.
True False |
| 5. | The expected monetary value approach is most appropriate when the decision-maker is risk-neutral.
True False |
| 6. | Expected monetary value gives the actual payoff one can expect in a given situation involving risk.
True False |
| 7. | Expected monetary value gives the long-run average payoff if a large number of identical decisions could be made.
True False |
| 8. | The expected value approach is used for major, non-recurring decisions involving several decision variables.
True False |
| 9. | An advantage of decision trees compared to payoff tables is that they permit us to analyze situations involving sequential or multistage decisions.
True False |
| 10. | Decision trees are useful when there is more than one decision variable.
True False |
| 11. | In a decision tree, square nodes represent chance events, and circular nodes denote decision points.
True False |
| 12. | Decision trees are analyzed from left to right.
True False |
| 13. | Influence diagrams contain more detailed information than decision trees.
True False |
| 14. | Influence diagrams represent complex situations with many random variables, but only one decision variable.
True False |
| 15. | In an influence diagram, the circles show chance events.
True False |
| 16. | The EVPI indicates an upper limit on the amount a decision-maker should be willing to spend to obtain perfect information.
True False |
| 17. | Graphical sensitivity analysis is limited to cases with no more than two alternatives.
True False |
| 18. | Graphical sensitivity analysis is used when the payoffs and probabilities of decision alternatives are uncertain.
True False |
| 19. | A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called:
|
| 20. | A decision tree is:
|
| 21. | The difference between expected payoff under certainty and expected payoff under risk is the:
|
| 22. | Which of the following is not true about influence diagrams?
|
| 23. | A sensitivity analysis graph:
|
| 24. | Testing how a problem solution reacts to changes in one or more of the model parameters in a decision problem is called:
|
| 25. | A former politician, who is now the owner of an Ottawa consulting firm, is trying to decide whether to hire one, two, or three consultants. He estimates that profits next year (in thousands of dollars) will vary with demand for his consulting services as follows:
If he 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 consultants he will decide to hire?
|
| 26. | A former politician, who is now the owner of an Ottawa consulting firm, is trying to decide whether to hire one, two, or three consultants. He estimates that profits next year (in thousands of dollars) will vary with demand for his consulting services as follows:
If he feels the chances of low, medium, and high demand are 50%, 20%, and 30%, respectively, what is his expected value of perfect information?
|
| 27. | 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:
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?
|
| 28. | 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:
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?
|
| 29. | The local operations manager for the Canada Revenue Agency 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 Parliament, as follows:
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?
|
| 30. | The local operations manager for the Canada Revenue Agency decides 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 Parliament, as follows:
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?
|
| 31. | 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:
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?
|
| 32. | 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:
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?
|
| 33. | 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:
If she feels there is a 30% chance that demand will be high, what are the expected monthly profits for the outlet she will decide to lease?
|
| 34. | 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:
If she feels there is a 30% chance that demand will be high, what is her expected payoff?
|
| 35. | 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:
If she feels there is a 30% chance that demand will be high, what is her expected value of perfect information?
|
| 36. | 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:
For what range of probability that demand will be high, will she decide to lease the small facility?
|
| 37. | 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:
For what range of probability that demand will be high, will she decide to lease the medium facility?
|
| 38. | 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:
For what range of probability that demand will be high, will she decide to lease the large facility?
|
| 39. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected cost (per thousand “hits”) for the strategy she will be selecting?
|
| 40. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected cost (per thousand “hits”) under certainty?
|
| 41. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected value (per thousand “hits”) of perfect information?
|
| 42. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the print media strategy?
|
| 43. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the mixed media strategy?
|
| 44. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the television media strategy?
|
| 45. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What would be the total payoff if script #1 was a success, but its sequel was not?
|
| 46. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the probability that script #1 will be a success, but its sequel will not?
|
| 47. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value of selecting script #1?
|
| 48. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value of selecting script #2?
|
| 49. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value for the optimum decision alternative?
|
| 50. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What would be the total payoff if the heart lab were funded in both the first and second years?
|
| 51. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the probability that the heart lab will be funded in both the first and second years?
|
| 52. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the decision alternative to select the cancer lab?
|
| 53. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the decision alternative to select the heart lab?
|
| 54. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the optimum decision alternative?
|
| 55. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the economics book would wind up being placed with a smaller publisher?
|
| 56. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the statistics book would wind up being placed with a smaller publisher?
|
| 57. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the decision alternative to write the economics book?
|
| 58. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the decision alternative to write the statistics book?
|
| 59. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the optimum decision alternative?
|
| 60. | A manager has developed a payoff table that indicates the profits associated with a set of alternatives under two possible states of nature. Answer the following questions.
(i) Determine the expected value of perfect information if P(S2) = .40.
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| 61. | A manager’s staff has compiled the information below which pertains to four capacity alternatives. Values in the matrix are present value in thousands of dollars.
If states of nature are equally likely and an expected value criterion of maximization is used, which alternative would be chosen?
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| 62. | A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A, $30,000 for B, $45,000 for C, and $60,000 for D if state of nature 1 occurs; and $60,000 for A, $80,000 for B, $90,000 for C, and $35,000 for D if state of nature 2 occurs.
(i) If P(State of Nature 1) is .40, what alternative has the highest expected monetary value?
|
| 63. | Given the payoff matrix below, answer the following questions:
(a) If somehow you find out for certain that state of nature #4 is going to occur, which alternative will you select? (i) What is your expected payoff under certainty?
|
| 64. | A manager is quite concerned about the recent deterioration of a section of the roof on a building that houses her firm’s computer operations. According to her assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis: I, which has a probability of occurrence of .5; II, which has a probability of .3; and III, which has a probability of .2. If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000. If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C.
(i) Draw a decision tree for this problem.
|
Chapter 05S Decision Analysis Key
| 1. | In decision theory, states of nature refer to a set of possible values for a random variable.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #1 Topic: 05S-01 Introduction |
| 2. | Typically the choice to “do nothing” based on a preference to stick with the status quo is not considered in the list of possible alternatives for a decision.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #2 Topic: 05S-01 Introduction |
| 3. | In order to use the expected value approach, one needs to determine the probabilities of future payoffs.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #3 Topic: 05S-03 Decision Tables |
| 4. | The probabilities assigned to each state of nature are taken from the appropriate probability distribution tables.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #4 Topic: 05S-03 Decision Tables |
| 5. | The expected monetary value approach is most appropriate when the decision-maker is risk-neutral.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #5 Topic: 05S-03 Decision Tables |
| 6. | Expected monetary value gives the actual payoff one can expect in a given situation involving risk.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #6 Topic: 05S-03 Decision Tables |
| 7. | Expected monetary value gives the long-run average payoff if a large number of identical decisions could be made.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #7 Topic: 05S-03 Decision Tables |
| 8. | The expected value approach is used for major, non-recurring decisions involving several decision variables.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #8 Topic: 05S-03 Decision Tables |
| 9. | An advantage of decision trees compared to payoff tables is that they permit us to analyze situations involving sequential or multistage decisions.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #9 Topic: 05S-04 Decision Trees |
| 10. | Decision trees are useful when there is more than one decision variable.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #10 Topic: 05S-04 Decision Trees |
| 11. | In a decision tree, square nodes represent chance events, and circular nodes denote decision points.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #11 Topic: 05S-04 Decision Trees |
| 12. | Decision trees are analyzed from left to right.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #12 Topic: 05S-04 Decision Trees |
| 13. | Influence diagrams contain more detailed information than decision trees.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #13 Topic: 05S-02 Influence Diagrams |
| 14. | Influence diagrams represent complex situations with many random variables, but only one decision variable.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #14 Topic: 05S-02 Influence Diagrams |
| 15. | In an influence diagram, the circles show chance events.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #15 Topic: 05S-02 Influence Diagrams |
| 16. | The EVPI indicates an upper limit on the amount a decision-maker should be willing to spend to obtain perfect information.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #16 Topic: 05S-07 Value of Information |
| 17. | Graphical sensitivity analysis is limited to cases with no more than two alternatives.
FALSE |
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #17 Topic: 05S-09 Sensitivity to Probability |
| 18. | Graphical sensitivity analysis is used when the payoffs and probabilities of decision alternatives are uncertain.
TRUE |
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #18 Topic: 05S-08 Sensitivity Analysis |
| 19. | A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #19 Topic: 05S-03 Decision Tables |
| 20. | A decision tree is:
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #20 Topic: 05S-04 Decision Trees |
| 21. | The difference between expected payoff under certainty and expected payoff under risk is the:
|
| Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #21 Topic: 05S-07 Value of Information |
| 22. | Which of the following is not true about influence diagrams?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. Stevenson – Chapter 05S… #22 Topic: 05S-02 Influence Diagrams |
| 23. | A sensitivity analysis graph:
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #23 Topic: 05S-09 Sensitivity to Probability |
| 24. | Testing how a problem solution reacts to changes in one or more of the model parameters in a decision problem is called:
|
| Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #24 Topic: 05S-08 Sensitivity Analysis |
| 25. | A former politician, who is now the owner of an Ottawa consulting firm, is trying to decide whether to hire one, two, or three consultants. He estimates that profits next year (in thousands of dollars) will vary with demand for his consulting services as follows:
If he 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 consultants he will decide to hire?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #25 Topic: 05S-05 Risk Profile |
| 26. | A former politician, who is now the owner of an Ottawa consulting firm, is trying to decide whether to hire one, two, or three consultants. He estimates that profits next year (in thousands of dollars) will vary with demand for his consulting services as follows:
If he feels the chances of low, medium, and high demand are 50%, 20%, and 30%, respectively, what is his expected value of perfect information?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #26 Topic: 05S-07 Value of Information |
| 27. | 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:
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?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #27 Topic: 05S-05 Risk Profile |
| 28. | 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:
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?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #28 Topic: 05S-07 Value of Information |
| 29. | The local operations manager for the Canada Revenue Agency 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 Parliament, as follows:
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?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #29 Topic: 05S-05 Risk Profile |
| 30. | The local operations manager for the Canada Revenue Agency decides 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 Parliament, as follows:
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?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #30 Topic: 05S-07 Value of Information |
| 31. | 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:
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?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #31 Topic: 05S-03 Decision Tables |
| 32. | 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:
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?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #32 Topic: 05S-07 Value of Information |
| 33. | 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:
If she feels there is a 30% chance that demand will be high, what are the expected monthly profits for the outlet she will decide to lease?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #33 Topic: 05S-05 Risk Profile |
| 34. | 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:
If she feels there is a 30% chance that demand will be high, what is her expected payoff?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #34 Topic: 05S-03 Decision Tables |
| 35. | 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:
If she feels there is a 30% chance that demand will be high, what is her expected value of perfect information?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #35 Topic: 05S-07 Value of Information |
| 36. | 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:
For what range of probability that demand will be high, will she decide to lease the small facility?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #36 Topic: 05S-09 Sensitivity to Probability |
| 37. | 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:
For what range of probability that demand will be high, will she decide to lease the medium facility?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #37 Topic: 05S-09 Sensitivity to Probability |
| 38. | 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:
For what range of probability that demand will be high, will she decide to lease the large facility?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #38 Topic: 05S-09 Sensitivity to Probability |
| 39. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected cost (per thousand “hits”) for the strategy she will be selecting?
|
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #39 Topic: 05S-05 Risk Profile |
| 40. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected cost (per thousand “hits”) under certainty?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #40 Topic: 05S-07 Value of Information |
| 41. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
If she feels that there is a 60% chance that the new cable network will be successful, what is her expected value (per thousand “hits”) of perfect information?
|
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #41 Topic: 05S-07 Value of Information |
| 42. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the print media strategy?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #42 Topic: 05S-09 Sensitivity to Probability |
| 43. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the mixed media strategy?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #43 Topic: 05S-09 Sensitivity to Probability |
| 44. | The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month’s budget for advertising on print media, television, or a mixture of the two. Her goal is to minimize the costs associated with reaching her audience. She estimates that the cost per thousand “hits” (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:
For what range of probability that the new cable network will be successful will she select the television media strategy?
|
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #44 Topic: 05S-09 Sensitivity to Probability |
| 45. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What would be the total payoff if script #1 was a success, but its sequel was not?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #45 Topic: 05S-07 Value of Information |
| 46. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the probability that script #1 will be a success, but its sequel will not?
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| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #46 Topic: 05S-07 Value of Information |
| 47. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value of selecting script #1?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #47 Topic: 05S-07 Value of Information |
| 48. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value of selecting script #2?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #48 Topic: 05S-07 Value of Information |
| 49. | The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script #2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a “flop”, then no sequel would be produced. What is the expected value for the optimum decision alternative?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #49 Topic: 05S-07 Value of Information |
| 50. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What would be the total payoff if the heart lab were funded in both the first and second years?
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| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #50 Topic: 05S-07 Value of Information |
| 51. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the probability that the heart lab will be funded in both the first and second years?
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| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #51 Topic: 05S-07 Value of Information |
| 52. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the decision alternative to select the cancer lab?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #52 Topic: 05S-07 Value of Information |
| 53. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the decision alternative to select the heart lab?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #53 Topic: 05S-07 Value of Information |
| 54. | One local hospital has just enough space and funds presently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital’s management decides to go with the heart lab, then there’s a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year, and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000, and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000, and a 40 percent chance of getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the optimum decision alternative?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #54 Topic: 05S-07 Value of Information |
| 55. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the economics book would wind up being placed with a smaller publisher?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #55 Topic: 05S-07 Value of Information |
| 56. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the statistics book would wind up being placed with a smaller publisher?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #56 Topic: 05S-07 Value of Information |
| 57. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the decision alternative to write the economics book?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #57 Topic: 05S-07 Value of Information |
| 58. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the decision alternative to write the statistics book?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #58 Topic: 05S-07 Value of Information |
| 59. | Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they can’t get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can’t get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected value for the optimum decision alternative?
|
| Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #59 Topic: 05S-07 Value of Information |
| 60. | A manager has developed a payoff table that indicates the profits associated with a set of alternatives under two possible states of nature. Answer the following questions.
(i) Determine the expected value of perfect information if P(S2) = .40. (i) Under certainty, the max. payoff is .6(10) + .4(8) = 9.2 EVPI for Alt. 1 is: .60 (10) + .40 (2) = 6.8 Therefore, Alternative 1 or 3 would be selected under risk, with an EVPI of 2.4. (ii) Refer to the diagram, above. 1: 10 – 8P Ranges: #1 is opt. from P(S2) = 0 to < .40. |
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #60 Topic: 05S-07 Value of Information |
| 61. | A manager’s staff has compiled the information below which pertains to four capacity alternatives. Values in the matrix are present value in thousands of dollars.
If states of nature are equally likely and an expected value criterion of maximization is used, which alternative would be chosen? A: $35; B: $33.75; C: $31.25; D: $27.50. Hence, choose A. |
| Difficulty: Easy Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #61 Topic: 05S-03 Decision Tables |
| 62. | A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A, $30,000 for B, $45,000 for C, and $60,000 for D if state of nature 1 occurs; and $60,000 for A, $80,000 for B, $90,000 for C, and $35,000 for D if state of nature 2 occurs.
(i) If P(State of Nature 1) is .40, what alternative has the highest expected monetary value? (i) Max EMV is C ($72) Ranges: |
| Difficulty: Hard Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. Stevenson – Chapter 05S… #62 Topic: 05S-09 Sensitivity to Probability |
| 63. | Given the payoff matrix below, answer the following questions:
(a) If somehow you find out for certain that state of nature #4 is going to occur, which alternative will you select? (i) What is your expected payoff under certainty? (a) A = 6 |
| Difficulty: Medium Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. Stevenson – Chapter 05S… #63 Topic: 05S-07 Value of Information |
| 64. | A manager is quite concerned about the recent deterioration of a section of the roof on a building that houses her firm’s computer operations. According to her assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis: I, which has a probability of occurrence of .5; II, which has a probability of .3; and III, which has a probability of .2. If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000. If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C.
(i) Draw a decision tree for this problem. EMV: A = $12,500, B = $18,400, C = $16,000 so choose B |
| Difficulty: Medium Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. Stevenson – Chapter 05S… #64 Topic: 05S-04 Decision Trees |
Chapter 05S Decision Analysis Summary
| Category | # of Questions |
| Accessibility: Keyboard Navigation | 39 |
| Difficulty: Easy | 11 |
| Difficulty: Hard | 8 |
| Difficulty: Medium | 45 |
| Learning Objective: 05S-01 Describe the decision analysis process and influence diagrams; model a single-stage decision problem as a decision table; and use the expected value approach to solve it. | 13 |
| Learning Objective: 05S-02 Construct a decision tree and use it to analyze multistage problem; understand and construct a risk profile chart; and illustrate how a decision tree can be entered in and solved by a popular software; DPL. | 14 |
| Learning Objective: 05S-03 Calculate expected value of perfect information (EVP) and calculate expected value of sample (imperfect) information (EVSI) using Bayes rule. | 26 |
| Learning Objective: 05S-04 Conduct sensitivity analysis to probability changes in a simple decision problem and understand sensitivity to input changes and a tornado chart. | 11 |
| Stevenson – Chapter 05S… | 64 |
| Topic: 05S-01 Introduction | 2 |
| Topic: 05S-02 Influence Diagrams | 4 |
| Topic: 05S-03 Decision Tables | 10 |
| Topic: 05S-04 Decision Trees | 6 |
| Topic: 05S-05 Risk Profile | 5 |
| Topic: 05S-07 Value of Information | 26 |
| Topic: 05S-08 Sensitivity Analysis | 2 |
| Topic: 05S-09 Sensitivity to Probability | 9 |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
