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Probability in Business Decision Making

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1. What is the role of probability concepts in business decision making?

2. Define probability concepts.

3. Give two examples that are related to the farming Industry or any other Industry or professional environment.

THANK YOU, your help is greatly appreciated.

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These are the questions I need HELP with:

1. What is the role of probability concepts in business decision making?

The concept of probability occupies an important place in the decision-making process under uncertainty, whether the problem is one faced in business, in government, in the social sciences, or just in one's own everyday personal life. In very few decision-making situations is perfect information -- all the needed facts -- available. Most decisions are made in the face of uncertainty It is the science of good decision making in the face of uncertainty and is used in many disciplines such as financial analysis, econometrics, auditing, production and operations including services improvement, and marketing research. It is also used in business for statistical process control, quality control, marketing and other day to day ...

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This discusses the role of probability concepts in business decision making with examples in 492 words.

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Business Math : Probability, Binomial Distributions, Decision-Making, Payoff Tables and Risk Management

1. Super Cola sales break down as 80% regular soda and 20% diet soda. While 60% of the regular soda is purchased by men, only 30% of the diet soda is purchased by men. If a woman purchases Super Cola, what is the probability that it is a diet soda?

2. A process follows the binomial distribution with n = 8 and p = .3. Find
a. P(x = 3)
b. P(x > 6)
c. P(x  2)

3. Scores on an endurance test for cardiac patients are normally distributed with mean = 182 and standard deviation = 24.
a. What is the probability a patient will score above 190?
b. What percentage of patients score below 170?
c. What score does a patient at the 75th percentile receive?

4. A calculus instructor uses computer aided instruction and allows students to take the midterm exam as many times as needed until a passing grade is obtained. Following is a record of the number of students in a class of 20 who took the test each number of times.

Students Number of tests

10 1
7 2
2 3
1 4

a. use the relative frequency approach to construct a probability distribution
b. show that it satisfies the required condition for being a probability distribution.
c. Find the expected value of the number of tests taken.

5. (40 points)

Chez Paul is contemplating either opening another restaurant or expanding its existing location. The payoff table for these two decisions is:

s1 s2 s3
New Restaurant -$80K $20K $160K
Expand -$40K $20K $100K

Paul has calculated the indifference probability for the lottery having a payoff of $160K with probability p and -$80K with probability (1-p) as follows:

Amount Indifference Probability (p)
-$40K .4
$20K .7
$100K .9

a. Is Paul a risk avoider, a risk taker, or risk neutral? EXPLAIN.

b. Suppose Paul has defined the utility of -$80K to be 0 and the utility of $160K to be 80. What would be the utility values for -$40K, $20K, and $100K based on the indifference probabilities?

c. Suppose P(s1) = .4, P(s2) = .3, and P(s3) = .3. Which decision should Paul make using the expected utility approach?

d. Compare the result in part c with the decision using the expected value approach.

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