MOD A

Which of the following is not considered a step in the decision-making process? A) Clearly identify the problem. B) Select the best alternative. C) Develop objectives. D) Evaluate alternatives. E) Minimize costs whenever possible.

The first step, and a key element, in the decision-making process is to A) consult a specialist. B) clearly define the problem. C) develop objectives. D) monitor the results. E) select the best alternative.

The last step of the decision-making process is to A) develop a model. B) evaluate each alternative. C) pick the best alternative. D) implement the decision. E) check the decision with senior management.

A square node on a decision tree infers that A) the node splits into various states of nature, of which only one will occur. B) there are several alternatives available. C) the manager must choose an alternative. D) there are several alternatives available and the manager must choose an alternative. E) the node splits into various states of nature, of which only one will occur, there are several alternatives available and the manager must choose an alternative.

In terms of decision theory, an occurrence or situation over which the decision maker has no control is called a(n) A) decision under uncertainty. B) decision tree. C) state of nature. D) alternative. E) probable state.

A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a(n) A) isoquant table. B) payback period matrix. C) payoff table. D) feasible region. E) decision tree.

The outcome of an alternative/state of nature combination is a(n) A) price. B) conditional value. C) expected value. D) conditional probability. E) maximum value.

The decision criterion that would be used by an optimistic decision maker solving a problem under conditions of uncertainty would be the A) expected monetary value criterion. B) equally likely criterion. C) maximax criterion. D) maximin criterion. E) minimin criterion.

A decision maker who uses the maximin criterion when solving a problem under conditions of uncertainty is A) an optimist. B) a pessimist. C) an economist. D) an optometrist. E) making a serious mistake; maximin is not appropriate for conditions of uncertainty.

Expected monetary value is most appropriate for problem solving that takes place A) when conditions are average. B) when all states of nature are equally likely. C) when all alternatives are equally likely. D) under conditions of uncertainty. E) under conditions of risk.

When solving decision trees, what phrase represents the act of dropping an alternative from consideration because it is less favorable than another available option? A) cut the leaf B) open the hatch C) shake the tree D) punt the ball E) prune the branch

There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $50,000, $25,000, and - $10,000 under these states of nature, respectively, what is the EMV of the factory? A) $50,000 B) $25,000 C) $28,333.33 D) $21,666.67 E) $2,166.67

A plant manager wants to know how much he should be willing to pay for perfect market research. Currently there are two states of nature facing his decision to expand or do nothing. Under favorable market conditions the manager would make $100,000 for the large plant and $5,000 for the small plant. Under unfavorable market conditions the large plant would lose $50,000 and the small plant would make $0. If the two states of nature are equally likely, how much should he pay for perfect information? A) $0 B) $25,000 C) $50,000 D) $100,000 E) unable to determine

The expected value with perfect information A) equals EVPI - EMV. B) requires that each decision alternative have a known probability of occurrence. C) is an input into the calculation of the expected value of perfect information. D) is the average of the maximax and the maximin. E) none of the above.

The difference between the expected payoff under perfect information and the maximum expected payoff under risk is A) expected monetary value. B) economic order quantity. C) expected value of perfect information. D) PERT. E) expected monetary payoff.

The likelihood that a decision maker will ever receive a payoff precisely equal to the EMV when making any one decision is A) low (near 0%). B) high (near 100%). C) dependent upon the number of alternatives. D) dependent upon the number of states of nature. E) 50%.

The expected value of perfect information (EVPI) is the A) payoff for a decision made under perfect information. B) payoff under minimum risk. C) average expected payoff. D) difference between the payoff under perfect information and the payoff under risk. E) payoff for a decision made under maximum risk.

The expected value with perfect information is A) the maximum EMV for a set of alternatives. B) the same as the expected value of perfect information. C) valuable in situations involving risk. D) the average return obtained when the decision maker knows which state of nature is going to occur before the decision is made. E) obtained using conditional probabilities.

A retailer is deciding how many of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $8 per unit and sells for $25 per unit. The conditional value for the decision alternative "Stock 3" and state of nature "Sell 1" is A) 1.4 units. B) $1 profit. C) $25 profit. D) $-8 profit. E) 25 units.

A retailer is deciding how many of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $8 per unit and sells for $25 per unit. The largest conditional value (profit) in the entire payoff table for this scenario is A) $-24 profit. B) $-8 profit. C) $17 profit. D) $51 profit. E) $75 profit.

Decision trees A) give more accurate solutions than decision tables. B) give less accurate solutions than decision tables. C) are especially powerful when a sequence of decisions must be made. D) are rarely used because one needs specialized software to graph them. E) are too complex to be used by decision makers.

A decision tree is a(n) A) algebraic representation of alternatives and states of nature. B) behavioral representation of alternatives and states of nature. C) matrix representation of alternatives and states of nature. D) graphic representation of alternatives and states of nature. E) tabular representation of alternatives and states of nature.

All of the following steps are taken to analyse problems with decision trees except A) define the problem. B) structure or draw a decision tree. C) assign probabilities to the alternatives. D) estimate payoffs for each possible alternative/state of nature combination. E) solve the problem by computing expected monetary values for each state of nature node.

A primary advantage of decision trees compared to decision tables is that decision trees A) are more accurate. B) provide a graphic. C) are smaller. D) are cheaper. E) can be used for sequential problems

A problem that involves a sequence of decisions A) cannot be analyzed with expected monetary value. B) can be better analyzed with a decision tree than by a decision table. C) must be analyzed in the same order that the decisions are made. D) cannot be analyzed with decision tree software. E) can only be analyzed using decision making under certainty.