Question 1: (20 Marks) (a) "Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem." Discuss on the above statement. Illustrate with suitable examples. [5] (b) What information does a decision maker need in order to perform an expected value analysis of a problem? What options are available to the decision maker if the probabilities of the states of nature are unknown? Can you think of a way you might use sensitivity analysis in such a case? (5) (c) The operations manager of a bus company that operates between Port Louis and Mahebourg is debating whether to add one or two early morning bus to the company's current schedule. The company management has calculated that 25 people must use this route each day for the company to break even. Management feels that there is a 30% chance that fewer than 50 people will use the route and 70% chance that 25 people or more will use the route. The following payoff values (in rupees) were developed over a one-month period and summarized in the table below. 0 Payoff values in Rs Demand for early morning route Decision Fewer than 25 people use 25 people or more use the route the route Add one bus -500 8,000 Add two bus -3,000 4,500 Do not add bus 0 1)Determine management's optimal decision using (a) Maximax criterion (b) Maximin criterion [%] (c) Equally likely criterion [4] (d) As the manager, you are realist and believe that the correct decision technique to determine the best alternative is to use a coefficient of realism of 0.85, calculate your criterion of realism. [%] ii) Determine the optimal decision if management was to use the expected monetary value criterion? [2] [%] Coursework 2021 BACF/20B/FT ) Calculate the expected opportunity loss for each decision, and hence determine management's optimal decision. [2] i) The bus company considers hiring a private consulting firm to conduct a study to obtain a better estimate of the demand for this early morning route. Determine the amount that the bus company should be willing to pay for this study. Do you think it would be worth trying to obtain additional information concerning which scenario is likely to occur? Question 1: (20 Marks) (a) "Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem." Discuss on the above statement. Illustrate with suitable examples. [5] (b) What information does a decision maker need in order to perform an expected value analysis of a problem? What options are available to the decision maker if the probabilities of the states of nature are unknown? Can you think of a way you might use sensitivity analysis in such a case? (5) (c) The operations manager of a bus company that operates between Port Louis and Mahebourg is debating whether to add one or two early morning bus to the company's current schedule. The company management has calculated that 25 people must use this route each day for the company to break even. Management feels that there is a 30% chance that fewer than 50 people will use the route and 70% chance that 25 people or more will use the route. The following payoff values (in rupees) were developed over a one-month period and summarized in the table below. 0 Payoff values in Rs Demand for early morning route Decision Fewer than 25 people use 25 people or more use the route the route Add one bus -500 8,000 Add two bus -3,000 4,500 Do not add bus 0 1)Determine management's optimal decision using (a) Maximax criterion (b) Maximin criterion [%] (c) Equally likely criterion [4] (d) As the manager, you are realist and believe that the correct decision technique to determine the best alternative is to use a coefficient of realism of 0.85, calculate your criterion of realism. [%] ii) Determine the optimal decision if management was to use the expected monetary value criterion? [2] [%] Coursework 2021 BACF/20B/FT ) Calculate the expected opportunity loss for each decision, and hence determine management's optimal decision. [2] i) The bus company considers hiring a private consulting firm to conduct a study to obtain a better estimate of the demand for this early morning route. Determine the amount that the bus company should be willing to pay for this study. Do you think it would be worth trying to obtain additional information concerning which scenario is likely to occur
