hw 3 stats

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Chris Cianfarini

Professor Campbell

DSS 560

Homework 3

3.

A. The Decision to be made is if they should construct aSmall or large plant

The Chance event is whether the“long run demand” will be low medium or high.

B.

C.

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D. Optimistic approach: I would chooseLarge plant thinking I could profit 500 million

in the best case scenario

Conservative Approach: I would choose theSmall Plant thinking that worst case

scenario I will make 150 Million

4.

A. The decision in this instance is whatlease would be the best option

The chance event ishow many miles amy will drive over the next 36 months

B.

Hepburn Pricing:

36(299) + .15(0) = $10,764

36(299) + .15(45,000 - 36,000) = $12,114

36(299) + .15(54,000 - 36,000) = $13,464

Midtown Pricing:

36(310) + .2 (0) = $11,160

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36(310) + .2 (0) = $11,160

36(310) + .2 (54,000-45,000) = $12,960

Hopkins Pricing:

36(325) + .15 (0) = $11,70036(325) + .15 (0) = $11,700

36(325) + .15 (0) = $11,700

C.

Optimistic approach: I would chooseHepburn because I would hope to drive the least

amount of miles and have the lowest cost.

Conservative Approach: I would choose theHopkins so that assuming I drove the max

amount of miles per year (18,000) I would have the lowest price available for that

amount of driving.

D.

Expected Values:

Hepburn:

.5 (10,764) + .4 (12,114) + .1 (13,464) =$11,574

Midtown:

.9 (11,160) + .1 (12,960) =$11,340

Hopkins:

1 (11,700) =$11,700

Amy should choose to lease her car from midtown

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F.

Hepburn:

.3(10,764) + .4(12,114) + .3(13,464) =$12,114

Midtown:

.7(11,160) + .3(12,960) =$11,700

Hopkins

1 (11,700) =$11,700

Hopkins or midtown would be the best options with these expected value probabilities.

9.

A.

The decision to be made is whether it would be better to go with the full price service orthe discount service.

The chance event is whether itwill be a strong demand for service or a weak demand

for service.

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The consequence is eithera profit / loss depending on their model choice and the

demand brought in.

There aretwo alternate decisions or options available to the decision maker

There areTwo outcomes that could happen with this chance event, strong & weak.

B.

Optimistically, Myrtle air should choose to go with theFull price service in hopes to

make the $960 in a strong market.

Conservatively, Myrtle air should choose to go with theDiscount service so that in aworst case scenario they will make $320 in a weak market.

C.

Full service:

.7 (960) + .3 (-490) =525

Discount service:

.7 (670) + .3 (320) =565

The best decision with the probabilities above is the discount service.

D.

Full service:

.8(960) + .2 (-490) =670

Discount Service:

.8(670) + .2(320) =600

The best decision with the probabilities above is the full service.

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E.

This graph depicts the percentage chance of a strong market.

With the expected value in the Y axis, and the probability of a strong market in the x axis

Approximately, if there is less than an 80% chance of a strong market it would be better

for the investor to go with the Discount service model.

If there is information reflecting that there is greater than an 80% chance of a strong

market it would be wise to go with the Full price service.

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13.

A.

The decision to be made is whether to plant Chardonnay , Riesling, or Chardonnay &

Riesling.

The Chance events are whether the demand for each wine will be strong or weak.

The Consequence is how much profit can be made when selling the wine they produce.

There are3 decisions Seneca can make and the possible outcomes are as follows:

All Riesling- Weak

All Riesling- Strong

All Chardonnay-Weak

All Chardonnay-Strong

Both C&R- C Strong R StrongBoth C&R-C Weak R Strong

Both C&R- R Weak C Strong

Both C&R- R Weak C Weak

8 Chance Events

B.

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C.

Chardonnay Only:

.55(20,000) + .45(70,000)

=42,500

Combination of Both:

.25(26000) + .2(60,000) + .5(40,000) + .05(22,000)

=39,600

Riesling Only:

.3(25,000) + .7(45,000)

=39,000

Seneca should only produce Chardonnay.

D.

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Chardonnay Only:

.55(20,000) + .45(70,000)

=42,500


.05(26,000) + .05(22,000) + .4(60,000) + .5(40,000)

=46,400

Riesling Only

.90 (45,000) + .10(25,000)

=43,000

Seneca Should produce a combination of both wines.

E.

Chardonnay Only:

.55(20,000) + .45(50,000)

=33,500


.25(26000) + .2(60,000) + .5(40,000) + .05(22,000)

=39,600

Riesling Only:

RieslingChardonnayWeakStrong

Weak0.050.50Strong0.050.40

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.3(25,000) + .7(45,000)

=39,000

Seneca Should produce a combination of both wines.

18.

A.

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If he everything is done best case with high demand, he will make 5,000,000

subtract 200,000 to prepare bid

subtract 2,000,000 to be a partner

subtract 150,000 for the forecast study

___________________________________5,000,000 - 200,000 - 2,000,000 - 150,000 =

= 2,650,000 profit if there is high demand.

If demand is moderate he will make 3,000,000

Subtract 200,000 for preparing bid

subtract 2,000,000 to be a partner

subtract 150,000 for forecast study _____________________________________

3,000,000 - 200,000 - 2,000,000 - 150,000 =

= 650,000 profit in moderate demand.

B.

EV of each “decision node”

8: .85(2650) + .15(650) =

= 2350

5: Go with higher EV decision of either 1150 or 2350.

=2350

9: .225(2650) + .775(650)=

=1100

6: Go with higher EV decision of either 1150 or 1100

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=1150

4: .6(2350) + .4(1150) =

=1870

10: .6(2800) + .4(800)=

=2000

7: Go with higher EV decision of either 2000 or 1300

=2000

3: Go with higher EV of 1870 or 2000

=2000

2: .8 (2000) + .2(-200) =

=1560

1: Go with higher EV of 1560 or 0

=1560

The optimal decision strategy is to:

Bid on the projectDo Not have market research

Build the complex

C.

Node 4 = 1870

Node 7 = 2000

2000-1870 =130

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The plans would break even once the cost of this research was reduced by at least

130,000 dollars.

The cost of the market research study would have to be less than 20,000 dollars.

hw 3 stats

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