Midterm Review Questions
STAT 233 Midterm Review Questions
1.
A local hotdog vendor that works the entire downtown area has determined the following payoffs for 3 possible strategies. Strategy A is to locate at one central location.
Strategy B is to push the cart around to cover the entire downtown area. Strategy C is to locate inside one of the small shopping centres.
Strategy
Rainy
Overcast
Sunny
A
B
C
$500
-150
920
700
500
400
900
1200
100
What is the decision and value of the decision using:
a.
b.
c.
Optimistic approach
Conservative approach
Minimax Regret approach
2.
A health food company is considering three possible strategies (1) introducing a new diet drink, (2) introducing a new diet snack food, (3) or not introducing any new products. The competitive market conditions (either favorable or unfavorable) will determine the profit (or loss) the company estimates will result given each decision as shown in the following payoff table. Payoffs are in millions.
Favorable
.35
New Diet Drink
New Diet Snack
Do nothing
$7.0
9.6
2.3
Market Conditions
Unfavorable
.65
-1.2
-3.5
0.7
a.
Construct a decision tree for this problem.
b.
What is the recommended decision using the expected value criterion?
c.
Construct an Opportunity Loss table. What is the EOL decision?
d.
What is the maximum amount of money that the health food company is willing to pay for further information on market conditions?
3.
Fenton and Farrah Friendly, husband and wife car dealers, are soon going to open a new dealership. They have three offers: from a foreign compact car company, a domestic producer of full-sized cars, and from a truck company. The success of each type of dealership will depend on how much gasoline is going to be available during the next few years. The profit from each type of dealership and the probabilities associated with gasoline availability are shown in the following payoff table.
Dealership
Shortage
Compact cars
Full-sized cars
Trucks
$300,000
-100,000
120,000
Gasoline
1.
A local hotdog vendor that works the entire downtown area has determined the following payoffs for 3 possible strategies. Strategy A is to locate at one central location.
Strategy B is to push the cart around to cover the entire downtown area. Strategy C is to locate inside one of the small shopping centres.
Strategy
Rainy
Overcast
Sunny
A
B
C
$500
-150
920
700
500
400
900
1200
100
What is the decision and value of the decision using:
a.
b.
c.
Optimistic approach
Conservative approach
Minimax Regret approach
2.
A health food company is considering three possible strategies (1) introducing a new diet drink, (2) introducing a new diet snack food, (3) or not introducing any new products. The competitive market conditions (either favorable or unfavorable) will determine the profit (or loss) the company estimates will result given each decision as shown in the following payoff table. Payoffs are in millions.
Favorable
.35
New Diet Drink
New Diet Snack
Do nothing
$7.0
9.6
2.3
Market Conditions
Unfavorable
.65
-1.2
-3.5
0.7
a.
Construct a decision tree for this problem.
b.
What is the recommended decision using the expected value criterion?
c.
Construct an Opportunity Loss table. What is the EOL decision?
d.
What is the maximum amount of money that the health food company is willing to pay for further information on market conditions?
3.
Fenton and Farrah Friendly, husband and wife car dealers, are soon going to open a new dealership. They have three offers: from a foreign compact car company, a domestic producer of full-sized cars, and from a truck company. The success of each type of dealership will depend on how much gasoline is going to be available during the next few years. The profit from each type of dealership and the probabilities associated with gasoline availability are shown in the following payoff table.
Dealership
Shortage
Compact cars
Full-sized cars
Trucks
$300,000
-100,000
120,000
Gasoline