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Strayer MAT540 week 2 discussion and assignment




Question;In your own words, explain how to obtain the ?expected value of perfect information? for any payoff table, which has probabilities associated with each state of nature. Then, provide an example, drawing from any of the payoff tables in Problems 1-17 in the back of Chapter 12. If no probabilities are given for the states of nature, then assume equal likelihood.1. A farmer in Iowa is considering either leasing some extra land or investing in saving certificates at the local bank. If weather conditions are good next year, the extra land will give the farmer an excellent harvest. However, if weather conditions are bad, the farmer will lose money. The saving certificates will result in the same return, regardless of the weather conditions. The return for each investment, given each type of weather condition, is shown in the following payoff table: WeatherDecision Good BadLease land $90,000 $-40,000Buy saving certificate 10,000 10,000Select the best decision, using the following decision criteria:a. Maximaxb. MaximinAssignmentWeek 2 Homework SubmissionClick the link above to submit your homework.Complete the following problems from Chapter 12:Problems 8, 16, 24, 32, 36Refer to the tree diagram below to complete problem 36:MAT540 - Week 2 Homework Chapter 128. A local real estate;investor in Orlando is considering three alternative investments: a;motel, a restaurant, or a theater. Profits from the motel or restaurant;will be affected by the availability of gasoline and the number of;tourists, profits from the theater will be relatively stable under any;conditions. The following payoff table shows the profit or loss that;could result from each investment:Gasoline AvailabilityInvestment Shortage Stable Supply SurplusMotel $-8,000 $15,000 $20,000Restaurant 2,000 8,000 6,000Theater 6,000 6,000 5,000Determine the best investment, using the following decision criteria.a. Maximaxb. Maximinc. Minimax regretd. Hurwicz (? = 0.4)e. Equal likelihood16.;A concessions manager at the Tech versus A&M football game must;decide whether to have the vendors sell sun visors or umbrellas. There;is a 30% chance of rain, a 15% chance of overcast skies, and a 55%;chance of sunshine, according to the weather forecast in College;Junction, where the game is to be held. The manager estimates that the;following profits will result from each decision, given each set of;weather conditions:Weather ConditionsDecision Rain Overcast Sunshine.30 .15 .55Sun visors $-500 $-200 $1,500Umbrellas 2,000 0 -900a. Compute the expected value for each decision and select the best one.b. Develop the opportunity loss table and compute the expected opportunity loss for each decision.24.;In Problem 13 the Place-Plus real estate development firm has hired an;economist to assign a probability to each direction interest rates may;take over the next 5 years. The economist has determined that there is a;.50 probability that interest rates will decline, a.40 probability;that rates will remain stable, and a.10 probability that rates will;increase.a. Using expected value, determine the best project.b. Determine the expected value of perfect information.Reference;Problem 13: Place-Plus, a real estate development firm, is considering;several alternative development projects. These include building and;leasing an office park, purchasing a parcel of land and building an;office building to rent, buying and leasing a warehouse, building a;strip mall, and building and selling condominiums. The financial success;of these projects depends on interest rate movement in the next 5;years. The various development projects and their 5-year financial;return (in $1,000,000s) given that interest rates will decline, remain;stable, or increase, are shown in the following payoff table:Interest Rate Project Decline Stable IncreaseOffice park $0.5 $1.7 $4.5Office building 1.5 1.9 2.5Warehouse 1.7 1.4 1.0Mall 0.7 2.4 3.6Condominiums 3.2 1.5 0.632.;The director of career advising at Orange Community College wants to;use decision analysis to provide information to help students decide;which 2-year degree program they should pursue. The director has set up;the following payoff table for six of the most popular and successful;degree programs at OCC that shows the estimated 5-year gross income ($);from each degree for four future economic conditions:Economic ConditionsDegree Program Recession Average Good RobustGraphic design 145,000 175,000 220,000 260,000Nursing 150,000 180,000 205,000 215,000Real estate 115,000 165,000 220,000 320,000Medical technology 130,000 180,000 210,000 280,000Culinary technology 115,000 145,000 235,000 305,000Computer information technology 125,000 150,000 190,000 250,000Determine the best degree program in terms of projected income, using the following decision criteria:a. Maximaxb. Maximinc. Equal likelihoodd. Hurwicz (? = 0.50)36. Construct a decision tree for the decision situation described in Problem 25 and indicate the best decision.Reference;Problem 25: 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, from a U.S. 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, given the availability;of gas, is shown in the following payoff table:Gasoline AvailabilityDealership Shortage Surplus.6 .4Compact cars $ 300,000 $150,000Full-sized cars -100,000 600,000Trucks 120,000 170,000Decision Tree diagram to complete


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