11) The optimistic decision criterion is the criterion of 11) A) realism. B) equally likely. C) maximax. D) maximin. 12) Bayes' theorem enables decision makers to revise probabilities based on 12) A) additional information. B) knowing, ahead of time, the actual outcome of the decision. C) perfect information. D) measurements of utility. 13) A plant manager considers the operational cost per hour of five machine alternatives. The cost per 13) hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day Machine $50 $40 $45 Machine 2 $45 $42 $47 Machine 3 $40 $35 $54 Machine 4 $60 $25 $48 Machine 5 $45 $40 $45 Using the optimistic criterion, which alternative is best? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 14) How are decision tables organized? 14) A) payoffs down the left, alternatives on top, states of nature inside B) states of nature down the left, alternatives on top, payoffs Inside C) alternatives down the left, payoffs on top, states of nature inside D) alternatives down the left, states of nature on top, payoffs inside 15) Pessimistic decision makers tend to 15) A) ignore bad outcomes. B) magnify favorable outcomes. C) discount favorable outcomes. D) A and B 16) The three decision-making environments are decision making under 16 ) A) risk, certainty, and uncertainty. B) utility, risk, and certainty. C) utility, risk, and uncertainty. D) utility, certainty, and uncertainty. 17) The following is a payoff table giving costs for various situations. 17) State 1 State 2 State 3 Alternative 1 45 37 83 Alternative 2 16 59 72 Alternative 3 23 65 91 Alternative 4 44 33 55 What decision should be made based on the minimax regret criterion? A) Alternative 1 B) Alternative 2 C) Alternative 3 D) Alternative 418) Utility values typically range from 18) A) 1 to 10. B) 0 to 1. C) 1 to 100. D) -1 to 1. 19) Consider the following payoff table. 19) State 1 State 2 State 3 Probability 0.4 0.35 0.25 Alternative 45 37 83 Alternative 2 16 59 72 Alternative 3 23 65 91 Alternative 4 44 33 55 Based upon these probabilities, a person would select Alternative 3. Suppose there is concern about the accuracy of these probabilities. A few of the analysts feel that the likelihood of State 1 is higher and that the likelihood of State 2 is much lower. If the likelihood of State 2 is reduced at the expense of State 1, how much lower can State 2's likelihood fall before Alternative 3 is no longer optimal? A) 0.07 B) 0.05 C) 0.06 D) 0.08 20) Nick has plans to open some pizza restaurants, but he is not sure how many to open. He has 20) prepared a payoff table to help analyze the situation. States of Nature Alternatives Good Fair Poor Market Market Market Open 1 380,000 0,000 - 400,000 Open 2 200,000 80,000 - 200,000 Do Nothing Nick believes there is a 40 percent chance that the market will be good, a 30 percent chance that it will be fair, and a 30 percent chance that it will be poor. A market research firm will analyze market conditions and will provide a perfect forecast (they provide a money back guarantee). What is the most that should be paid for this forecast? A) $ 53,000 B) $176,000 C) $ 44,000 D) $123,000 21) A plant manager considers the operational cost per hour of five machine alternatives. The cost per 21) hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day Machine 1 $50 $40 $45 Machine 2 $45 $42 $47 Machine 3 $40 $35 $54 Machine 4 $60 $25 $48 Machine 5 $45 $40 $45 Using the equally likely criterion, which alternative is best? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4