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Management Science Quiz 1 Solution

Man Sci

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117 views

Management Science Quiz 1 Solution

Man Sci

Uploaded by

whlyzamayc
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Management Science – Summer 2024 - Quiz 1 7/1/2024 ( 60 pts)

NAME : ____________________________Class Schedule:_________________ Score:_________________

Test I. True or False. Write C if the statement is correct and W if it is not. Use the space provided before a number for
your answers. ( 20 pts)

True 1. All uncontrollable inputs or data must be specified before we can analyze the model and recommend
a decision or solution for the problem.
False 2. The terms 'stochastic' and 'deterministic' have the same meaning in quantitative analysis.
True 3. If you are deciding to buy either machine A, B, or C with the objective of minimizing the sum of
labor, material and utility costs, you are dealing with a single-criterion decision.
False 4. The feasible solution is the best solution possible for a mathematical model.
False 5. Uncontrollable inputs are the decision variables for a model.
True 6. Square nodes in a decision tree indicate that a decision must be made.
True 7.Circular nodes in a decision tree indicate that it would be incorrect to choose a path from the node.
False 8. The expected value of an alternative can never be negative

True 9. A decision strategy is a sequence of decisions and chance outcomes, where the decisions chosen
depend on the yet to be determined outcomes of chance events.
False 10. The decision alternative with the best expected monetary value will always be the most desirable
decision.
False 11.The decision alternative with the best expected monetary value will always be the most desirable
decision.

True 12.A risk avoider will have a concave utility function.


True 13. The utility function for a risk avoider typically shows a diminishing marginal return for money.
False 14. Given two decision makers, one risk neutral and the other a risk avoider, the risk avoider will
always give a lower utility value for a given outcome.
True 15. Maximizing the expected payoff and minimizing the expected opportunity loss result in the same
recommended decision.
False 16. The quantitative analysis approach requires the manager's prior experience with a similar problem.
True 17. When the value of the output cannot be determined even if the value of the controllable input is
known, the model is stochastic.
False 18. A model that uses a system of symbols to represent a problem is called iconic.
False 19. When the utility function for a risk-neutral decision maker is graphed (with monetary value on the
horizontal axis and utility on the vertical axis), the function appears as a concave curve.
True 20. The purchase of insurance and lottery tickets shows that people make decisions based on utility.

TEST II. PROBLEMS. Solve the following problems below. Write your final answer on the space provided for your
answers. Do not use yellow pad. You can use the back of this test paper for your computations.

Problem 1. A payoff table is given as ( 6 pts)

State of Nature
Decision s1 s2 s3
d1 250 750 500
d2 300 -250 1200
d3 500 500 600

a. What choice should be made by the optimistic decision maker? d 2

b. What choice should be made by the conservative decision maker? d3

c. What decision should be made under minimax regret? d1

Problem 2. Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Grove
Street for $120,000. Dollar has determined probability estimates of the store's future profitability, based on economic
outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4.
a. Should Dollar sell the store on Grove Street? (3 pts) Yes, Dollar should sell store

b. What is the EVPI? ( 2 pts) $8,000


Problem 3. For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.

State of Nature
Decision s1 s2 s3
d1 -5000 1000 10,000
d2 -15,000 -2000 40,000

a. What alternative would be chosen according to expected value? (3 pts.) EV(d1) = 3250 and
EV(d2) = 10750, so choose d2.

Problem 4.

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