The following table is a payoff matrix associated with a farmer’s decision to purchase a pump for irrigation or to depend on the rains d) Draw up a regrets table and use it to determine which alternative will be chosen under the minimax regret decision criterion. (e) Estimate the expected value of perfect information (EVPI)
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The following table is a payoff matrix associated with a farmer’s decision to purchase a pump for irrigation or to depend on the rains
d) Draw up a regrets table and use it to determine which alternative will be
chosen under the minimax regret decision criterion.
(e) Estimate the expected value of perfect information (EVPI)
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- A. A company wants to produce a souvenir with a marketing life of six months. Uncertainty surrounds the likely sales volume as well as the fixed costs of the venture as shown below: Sales units Probability Contrn. /unit Probability Fixed cost K7 K5 100 000 0.3 80 000 0.6 60 000 0.1 1.0 0.5 0.5 1.0 Determine the expected value of the contribution K400 000 K450 000 K500 000 Probability 0.2 0.5 0.3 1.03. The manager for a manufacturing company must recommend whether to construct a large plant, construct a small plant or do nothing. He estimates the long-run profits in $ as follows: State of Nature Alternative Good Average Poor Market($) Market ($) Market ($) Construct a 100,000 35,000 -60,000 large plant Construct a 75,000 25,000 -40,000 small plant Do nothing -5,000 0 0 Probability 25% 50% 25% Solve using: A. Expected Opportunity Loss B. Expected Value of Perfect InformationAbdullah is looking to invest for the next three years. He is looking to invest OMR 7500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years? Select one: O a. 8681 OMR b. 8870 OMR O c. 8000 OMR O d. None of these
- a business owner is planning to strategies his company's growth, he can either buy , rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or business is slow. Aletnative Business Doing Goood Business Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Lapace method, the strategy is: A. Do nothing B. Lease C. Rent D. BuyDiscuss the following statement: “Economists are predicting that interest rates willcontinue to be under 10 percent for at least 15 years.”Sun TV sells TV sets. It does not sell smart TVs so customers do not come to Sun TV if they want to purchase smart TVs. Sun TV wants to start selling smart TVs and will only sell smart TVs to customers to whom they advertise. Managers use customer information (income level, previous purchase history) to decide which customers they should target. The team needs to decide how sure it must be in predicting customer interest in a smart TV. If it is too cautious, it will choose a very high cutoff probability and only market to customers who it believes are very likely to be in the market for a smart TV. This may cause them to miss out on many customers. If they are too aggressive and choose a low cutoff probability, they may identify more individuals interested in buying smart TVs but also end up wasting marketing dollars on customers who are not interested in purchasing smart TVs. To choose a cutoff probability, the team develops the confusion matrices below for two cutoff probabilities on…
- The water pump company has succeeded in introducing a water pump that saves electricity, is easy to install, and is durable (guaranteed). Its high quality has given the company an early edge in the local and national markets, but the entry of highly skilled competitors may occur within the next 3 years. Assume that the income and expense relationship of the company is as follows: TR = 22000Q - 15.6Q2 MR = dTR / dQ = 22000 - 31.2Q TC = 300000 + 4640Q + 10Q2 MC = dTC / dQ = 4640 + 20Q Where TR is income (in thousands of rupiah), Q is quantity (in units), MR is marginal income (in thousands of rupiah), TC is total cost, including a risk-adjusted normal rate of return on investment (in thousands of rupiah), and MC is the marginal cost (in thousands of rupiah). a. Compute: the profit-maximizing price-output combination. b. Compute: long-run equilibrium high-price / low-output. c. Compute: long-run low-price / high-output equilibrium4. A portfoho manager believes that tomorrow s foreign exchange of the Euro per US dollar will be nomally distributed with mean 2.03 and standard deviation 0.08. Using the manager's mumbers, answer the following questions: a What is the probability that tomorrow's rate will be above 2.08? b. What is the probability that tomorrow s rate will be below 1.87? What is the probability that tomorrow's rate will be between 2.00 and 2.20? a. C. 5. A student is guessing on a ten question multiple choice quiz, the probability of guessing correctly on the each question is .20. What is the probability that the student gets exactly 2 questions right? What is the probability that she would guess more than less than four questions right? 1S 6. An investment has probabilities 0.1, 0.2,0.35, 0.25 and 0.1 of giving returns equal to 40%, 30%, 15%, 5% and -15%. What is the expected retum and standard deviation of returns? 7. The holders of an insurance policy file clams at an average rate of 0.45 per year.…eferring to the pay-off table, determine which alternative would be chosen under each of these strategies: Possible future demand in OMR Alternative Low Medium High A 12 15 15 B 10 13 16 C 6 8 19 For the data in above table, assume probabilities of: (low demand) = 0.15, (medium demand) = 0.55, and (high demand) = 0.3. Using a Minimax regret approach the value of the lowest regret is. (Write the number only)
- . A business owner is planning to strategize his company's growth. He can either buy, rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or the business is slow. Alternative Business Doing Good Business is Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Laplace's method, the best strategy is: Lease Buy Rent Do nothingLomotan Piggery grows pigs to sell to a meat processing company. It is known for a fact that its peak season is during the first quarter of the year. Lomotan Piggery has checked the demand for pigs for the past three years which is shown below: Demand for Pigs at Lomotan Piggery: Demand (1,000s) per Quarter Year Q1 Q2 Q3 Q4 Total 2011 47 43 41 39 170 2012 48 46 38 44 176 2013 49 44 46 37 176 Total 144 133 125 120 522 What are the quarter 3 forecasts for 2014 using linear trend?The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value to recommend a decision.