answer all Purchase strategy Weather outcome Probability
answer all
Purchase strategy
Weather outcome Probability Buy 300 Buy 400 Buy 500
Good 0.1 $15,000 $20,000 $25,000
Average 0.6 8,000 10,000 12,000
Poor 0.3 2,000 0 -4,000
1. What is the maximum value of the “Buy 300” strategy?
a. $15,000
b. $20,000
c. $8,000
d. $0
e. None of the above
2. What is the minimum value of the “Buy 300” strategy?
a. $2,000
b. $10,000
c. $8,000
d. $0
e. None of the above
3. Which strategy should be selected under the “most likely outcome” decision rule?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
4. Which strategy should be selected under the “maximax” decision rule?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
5. Which strategy should be selected under the “maximin” decision rule?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
6. What is the simple average of the Buy 300 strategy?
a. $20,000
b. $10,000
c. $8,333.33
d. $2,000
e. None of the above
7. What is the simple average of the Buy 400 strategy?
a. $20,000
b. $11,000
c. $10,000
d. $8,333.33
e. None of the above
8. What is the simple average of the Buy 500 strategy?
a. $20,000
b. $11,000
c. $10,000
d. $8,333.33
e. None of the above
9. Which strategy should be selected using the simple average decision rule?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
10. If the farmer need to ensure that he received $2,000 or more, which strategy would he chose?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
11. What is the expected value of the Buy 400 strategy?
a. $10,000
b. $8,500
c. $8,000
d. $6,900
e. None of the above
12. Which strategy should be selected using the Expected Value decision rule?
a. Buy 300
b. Buy 400
c. Buy 500
d. Buy 0
e. None of the above
Homework Answers
. 1. a. Max value of buy 300 strategy is 15000
2. a in value of buy 300 stratey is 2000.
3. EMV of buy 300 = 15000x0.1+8000x0.6+2000x0.3 = 6900
EMV of buy 400 =8000
EMV of buy 500 is =8500
The most likely outcome is associated with buy 500
c is correct.
4. Maximum of Maximum value is Max [ 25000,12000, 2000] = 25000
Option c is correct
5. Maximum of min values is Max [ 15000,8000, -4000] = 15000
a is the correct answer as buy 300 is more appropriate.
6 c
7c
8b
9 c
10 a
11 c EV of buy 400 is 8000
12 Under EV decision rule, buy 500 is the best. c is correct.
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