Discuss the below:
1 Expansion Options Favorable Mkt Unfavorable Mkt
Build large work shop + $250,000 - $325,000
Build medium sized shop + $300,000 - $225,000
Build small work shop + $ 165,000 - $25,000
Given the pay off table above, an optimistic decision maker must decide whether to invest in building a large, medium or small work shop.
Which option should he (or she) select?
2. Consider the following pay off table relating to the purchase of investment decisions:
Alternatives Good Economy Poor Economy
Stocks + $70,000 - $25,000
Bonds + $40,000 - $20,000
CDs + $25,000 + $22,000
Probability 0.6 0.4
a. What decision would maximize expected profits?
b. What is the maximum amount that should be paid for a perfect forecast of the economy? (i.e., EVPI).
3. The following table shows the grades Applied Decision Methods students got on their first test and also their final grades in the course:
Student 1st Test Final Grade
A 90 80
B 75 70
C 88 82
D 80 73
E 96 94
F 70 64
G 66 64
H 95 95
I 75 76
a. Develop a regression equation that could be used to predict the final average in the course based on the 1st test grade.
b. Using your predicting equation, predict the final average of a student who made a 75 on the 1st test.