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MCQs: Minimax regret & Expected value of perfect information

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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 has estimated demand in three categories: low, medium and high.

Low medium high
one 50 75 100
two 0 100 100
three -100 70 300

2) If she uses the minimax regret criterion, how many beauticians will she decide to hire?
a. one
b. two
c. three
d. either one or two
e. either two or three

3) If she feels the chances of low, medium, and high demand are 50%, 20%, and 30% respectively, what is her expected value of perfect information?
a. $48,000
b. $65,500
c. $81,000
d. $85,000
e. $104,000

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Solution Summary

The solution provides step by step method for the decision making based on minimax regret criterion and expected value of perfect information. Formula for the calculation and Interpretations of the results are also included.

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Decision Analysis Questions

All questions have been answered. I just need someone to check the accuracy of my answers.

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Indicate whether the sentence or statement is true or false.

T 1. A state of nature is an actual event that may occur in the future.

F 2. The maximin criterion results in the maximum of the maximum payoffs.

F 3. The Hurwicz criterion is a compromise between the maximax and maximin criteria.

T 4. The minimax regret criterion maximizes the maximum regret.

F 5. The Hurwicz criterion multiplies the worst payoff by the coefficient of optimism.

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

C 6. The maximax criterion results in the

a. minimum of the minimum payoffs

b. maximum of the minimum payoffs

c. maximum of the maximum payoffs

d. minimum of the maximum payoffs

A 7. The Hurwicz criterion multiplies the

a. best payoff by the coefficient of optimism

b. worst payoff by the coefficient of optimism

c. best payoff by the worst payoff

d. none of the above

C 8. The difference between expected payoff under certainty and expected payoff under risk is the

a.expected net value

b. expected rate of return

c. expected value of perfect information

d. expected value

C 9. Which of the following is not an approach for decision making under uncertainty?

a. minimax


c.decision tree

d.minimax regret

C 10. The ______________ of sample information is the ratio of the expected value of sample information to the expected value of perfect information

a. utilization

b. expected value

c. efficiency

d. coefficient

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