# Project #10888 - Decision analysis

Must  Word-process formulas using Equation Editor and diagrams using excel Drawing Tool. All questions must be answered completely in order to release payment.

Problem 1

Adele Weiss manages the campus flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Advance sales are so small that Weiss has no way to estimate the demand for the red roses. She buys roses for \$15 per dozen and sells them for \$40 per dozen. Pay-off table for the problem is given below.

 Demand for Red Roses Alternative Low (25 dozen) Medium (60 dozen) High (130 dozen) Do nothing 0 0 0 Order 25 dozen 300,000 300,000 300,000 Order 60 dozen 100,000 600,000 600,000 Order 130 dozen -100,000 400,000 900,000 Probability 0.3 0.4 0.3

What is the decision based on each of the following criteria? Show work in making the decision for each criterion.

a)      EMV approach

b)      EOL approach

Use the tables given below.

a)      EMV Approach

 Demand for Red Roses Alternative Low (25 dozen) Medium (60 dozen) High (130 dozen) EMV Do nothing Order 25 dozen Order 60 dozen Order 130 dozen Probability 0.3 0.4 0.3

b)      EOL Approach

 Demand for Red Roses Alternative Low (25 dozen) Medium (60 dozen) High (130 dozen) EOL Do nothing Order 25 dozen Order 60 dozen Order 130 dozen Probability 0.3 0.4 0.3

Problem 2

Build-Rite construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, so Build –Rite cannot estimate the probability of continued benefits from it relationship with the show. Demand for home improvements next year may be either low or high. But Build-Rite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. Build-Rite has developed the following payoff table.

 Payoffs Demand For Home Improvements Alternative Low Moderate High Hire (\$250,000) \$100,000 \$625,000 Subcontract \$100,000 \$150,000 \$415,000 Do nothing \$50,000 \$80,000 \$300,000

What is the decision based on each of the following criteria? Show work in making the decision for each criterion:

a)      Maximax

b)      Maximin

c)       Criterion of realism with coefficient of realism = 0.7

d)      Equally likely

e)      Minimax regret

Use the tables given below.

a)      Optimistic or Maximax Criterion

 Payoffs Demand For Home Improvements Alternative Low Moderate High Hire Subcontract Do nothing

b)      Pessimistic or Maximin Criterion

 Payoffs Demand For Home Improvements Alternative Low Moderate High Hire Subcontract Do nothing

c)       Criterion of realism with coefficient of realism = 0.7

 Payoffs Demand For Home Improvements Alternative Low Moderate High Hire Subcontract Do nothing

d)      Equally likely or Principle of Insufficient Reason Criterion

 Payoffs Demand For Home Improvements Alternative Low Moderate High Hire Subcontract Do nothing

e)      Minimax Regret Approach

 Regrets Demand For Home Improvements Alternative Low Moderate High Hire Subcontract Do nothing

Problem 3

Planwell Corporation

Planwell Corporation is considering whether to build a large plant or a small plant for new product, which has an estimated life of 7 years.  A small plant requires an investment of \$3.4 million and a large plant of \$4 million.  The following estimates are available for annual income.

 Plant Size Demand Annual Income Large High \$900,000 Low \$300,000 Small High \$600,000 Low \$500,000

The probability of high demand in first year is 0.75.  If the demand is high in the first year, the probabilities of high and low demands in subsequent years are 0.7 and 0.3 respectively.  The probability of low demand in the first year is 0.25.  If the demand is low in the first year, the probabilities of high and low demands in subsequent years are 0.2 and 0.8 respectively.

Evaluate the decision alternatives open to the company using decision trees.  Which alternative should be followed by the Planwell company and what return can be expected?

Use this space for the Decision Tree

Decision Tree for Planwell Corporation

 Subject Mathematics Due By (Pacific Time) 08/18/2013 03:00 pm
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