Question 1

The construction manager for Acme Construction, Inc., must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows:

If he feels the chances of declining, stable, and growing population trends are 40 percent, 50 percent, and 10 percent, respectively, what is his expected value of perfect information?

Accepted Answer

A)  $187,000
B)  $132,000
C)  $122,000
D)  $64,000
E)  $55,000F) A) and B)
G) B) and E)

Question 2

Everything else being equal, a firm considering outsourcing would find all of the following desirable except:

Accepted Answer

A)  total costs will be lower for outsources goods or services.
B)  its supplier has more expertise in whatever is being outsourced.
C)  it can maintain tight control over knowledge.
D)  proprietary information will be disclosed to the supplier.
E)  control over operations will be maintained by the firm.F) B) and D)
G) C) and D)

Question 3

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. What would the profit be if she were to produce and sell 5,000 rosebushes?

Accepted Answer

A)  $0
B)  $9,000
C)  $15,000
D)  $10,000
E)  $30,000F) B) and C)
G) A) and D)

Question 4

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high.

If she uses the minimax regret criterion, how many beauticians will she decide to hire?

Accepted Answer

A)  one
B)  two
C)  three
D)  either one or two
E)  either two or threeF) A) and D)
G) B) and D)

Question 5

Departmentalizing decisions increases the risk of __________ leading to a poor decision.

Accepted Answer

A)  bounded rationality
B)  suboptimization
C)  risk aversion
D)  misspecification
E)  complexificationF) D) and E)
G) None of the above

Question 6

The range of probability for which an alternative has the best expected payoff can be determined by:

Accepted Answer

A)  simulation.
B)  sensitivity analysis.
C)  priority recognition.
D)  analysis of variance.
E)  decision analysis.F) All of the above
G) A) and E)

Question 7

The advertising manager for Roadside Restaurants, Inc., needs to decide whether to spend this month's budget for advertising on print media, television, or a mixture of the two. She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:

If she feels that there is a 60 percent chance that the new cable network will be successful, what is her expected cost (per thousand "hits") for the strategy she will select?

Accepted Answer

A)  $3.40
B)  $4.60
C)  $8.00
D)  $9.00
E)  $10.00F) A) and D)
G) All of the above

Question 8

Increasing productivity and also quality will result in increased effective capacity.

Accepted Answer

A) True 
 B)False

Question 9

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows:

If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?

Accepted Answer

A)  $140,000
B)  $170,000
C)  $285,000
D)  $305,000
E)  $475,000F) B) and E)
G) All of the above

Question 10

Capacity increases are usually acquired in fairly large "chunks" rather than in smooth increments.

Accepted Answer

A) True 
 B)False

Question 11

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

Accepted Answer

A)  0.33
B)  0.67
C)  0.45
D)  0.50
E)  0.55F) C) and D)
G) A) and D)

Question 12

Consider the following decision scenario:

*PV for profits ($000) 
If yes and no are equally likely, which alternative has the largest expected monetary value?

Accepted Answer

A)  small.
B)  medium.
C)  med.-large.
D)  large.
E)  ex-large.F) A) and B)
G) C) and D)

Question 13

In reaching a decision, the alternative with the lowest cost should be ranked number 1.

Accepted Answer

A) True 
 B)False

Question 14

Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.

Accepted Answer

A) True 
 B)False

Question 15

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high.

If she feels the chances of low, medium, and high demand are 50 percent, 20 percent, and 30 percent respectively, what are the expected annual profits for the number of beauticians she will decide to hire?

Accepted Answer

A)  $54,000
B)  $55,000
C)  $70,000
D)  $50,000
E)  $154,000F) All of the above
G) A) and E)

Question 16

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced.
What is the probability that script 1 will be a success, but its sequel will not?

Accepted Answer

A)  0.8
B)  0.7
C)  0.56
D)  0.2
E)  0.14F) A) and C)
G) A) and D)

Question 17

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows:

If she feels there is a 30 percent chance that demand will be high, what is her expected value of perfect information?

Accepted Answer

A)  $1,600
B)  $1,100
C)  $1,000
D)  $900
E)  $500F) B) and C)
G) C) and D)

Question 18

Which of the following characterizes decision making under uncertainty?

Accepted Answer

A)  Decision makers must rely on probabilities in assessing outcomes.
B)  The likelihood of possible future events is unknown.
C)  Relevant parameters have known values.
D)  Certain parameters have probabilistic outcomes.
E)  Lack of knowledge about how risk-averse the decision maker is.F) B) and D)
G) A) and B)

Question 19

Among decision environments, uncertainty implies that states of nature have wide-ranging probabilities associated with them.

Accepted Answer

A) True 
 B)False

Question 20

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows:

If she uses the minimax regret criterion, what size outlet will she decide to lease?

Accepted Answer

A)  small
B)  medium
C)  large
D)  either small or medium
E)  either medium or largeF) A) and B)
G) B) and E)

Exam 5: Strategic Capacity Planning for Products and Services

Departmentalizing decisions increases the risk of __________ leading to a poor decision.

Correct Answer
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Correct Answer
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Capacity increases are usually acquired in fairly large "chunks" rather than in smooth increments.

Correct Answer
verified

Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.

Correct Answer
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In reaching a decision, the alternative with the lowest cost should be ranked number 1.

Correct Answer
verified

Correct Answer
verified

Consider the following decision scenario: *PV for profits ($000) If yes and no are equally likely, which alternative has the largest expected monetary value?

Correct Answer
verified

Correct Answer
verified

Increasing productivity and also quality will result in increased effective capacity.

Correct Answer
verified

Correct Answer
verified

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

Correct Answer
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Correct Answer
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Among decision environments, uncertainty implies that states of nature have wide-ranging probabilities associated with them.

Correct Answer
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The range of probability for which an alternative has the best expected payoff can be determined by:

Correct Answer
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Everything else being equal, a firm considering outsourcing would find all of the following desirable except:

Correct Answer
verified

Correct Answer
verified

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: If she uses the minimax regret criterion, what size outlet will she decide to lease?

Correct Answer
verified

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. What would the profit be if she were to produce and sell 5,000 rosebushes?

Correct Answer
verified

Correct Answer
verified

Which of the following characterizes decision making under uncertainty?

Correct Answer
verified

Exam 5: Strategic Capacity Planning for Products and Services

Departmentalizing decisions increases the risk of __________ leading to a poor decision.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Capacity increases are usually acquired in fairly large "chunks" rather than in smooth increments.

Correct AnswerverifiedShow Answer

Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.

Correct AnswerverifiedShow Answer

In reaching a decision, the alternative with the lowest cost should be ranked number 1.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the following decision scenario: *PV for profits ($000) If yes and no are equally likely, which alternative has the largest expected monetary value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Increasing productivity and also quality will result in increased effective capacity.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Option A has a payoff of $10,000 in environment 1 and $20,000 in environment 2. Option B has a payoff of $12,500 in environment 1 and $17,500 in environment 2. Once the probability of environment 2 exceeds ______, option A becomes the better choice.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Among decision environments, uncertainty implies that states of nature have wide-ranging probabilities associated with them.

Correct AnswerverifiedShow Answer

The range of probability for which an alternative has the best expected payoff can be determined by:

Correct AnswerverifiedShow Answer

Everything else being equal, a firm considering outsourcing would find all of the following desirable except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: If she uses the minimax regret criterion, what size outlet will she decide to lease?

Correct AnswerverifiedShow Answer

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. What would the profit be if she were to produce and sell 5,000 rosebushes?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following characterizes decision making under uncertainty?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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