Develop a decision analysis formulation

Assignment Help Management Theories

Reference no: EM132698991

Problem 1

You are given the following payoff table consisting of costs (in units of thousands of dollars) for a decision analysis problem.

		States of Nature
Alternative	S1		S2	S3	S4
A1	6		2	4	3
A2	3		4	3	4
A3	8		1	5	3
Prior Probabilities	0.4		0.4	0.1	0.1

1. Which alternative should be chosen and what is the payoff value using the following approaches? Support your answers.
a) Optimistic approach
b) Pessimistic approach
c) Mini-max regret approach
d) Maximum likelihood approach

2. Determine the Expected Value of Perfect Information.

Problem 2

Jean Clark is the manager of the Midtown Safeway Grocery Store. She now needs to replenish her supply of strawberries. Her regular supplier can provide as many cases as she wants. However, because these strawberries already are very ripe, she will need to sell them tomorrow. The unsold cases will be sold at a loss to one of the Murattabat places for $2 per case. Jean estimates that she will be able to sell 10, 11, 12, or 13 cases tomorrow. She can purchase the strawberries for $3 per case and sell them for $8 per case. Jean now needs to decide how many cases to purchase. Jean has checked the store's records on daily sales of strawberries. On this basis, she estimates that the prior probabilities are 0.2, 0.4, 0.3, and 0.1 for being able to sell 10, 11, 12, and 13 cases of strawberries tomorrow.

a) Develop a decision analysis formulation of this problem by identifying the decision alternatives, the states of nature, and the payoff table.

b) If Jean is dubious about the accuracy of these prior probabilities and so chooses to ignore them and use the maxi-max criterion, how many cases of strawberries should she purchase and what is her expected payoff value?

c) How many cases should be purchased if she uses the maxi-min criterion and what is her expected payoff value?

d) How many cases should be purchased if she uses the maximum likelihood criterion and what is her expected payoff value?

e) How many cases should be purchased according to Bayes' decision rule and what is her expected payoff value?

f) How many cases should be purchased according to the mini-max regret criterion and what is her expected payoff value?

Attachment:- Practice Problems.rar

Reference no: EM132698991

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