Question

Show all calculations to support your answers (a) Describe the advantage in using a payoff matrix to analyse decisions. Explain the steps required in developing such a matrix (b) What advantage do decision trees provide and in what situations are they preferred to a payoff matrix? Goleb is considering the purchase of two types of industrial robots. The ROB1 is a large robot capable of performing a variety of tasks,including welding and painting. The ROB1 is a smaller and slower robot, but it has all the capabilities of ROB1. The robots will be used to perform a variety of repair operations on large industrial equipment. Of course, George can always do nothing and not buy any robots ket for the repair operation could be either favourable or unfavourable. fthe market is favourable ROB1 is expected to return $50,000 profit and ROB2 30,000 profit If the market is unfavourable ROB1 is expected to lead to a loss of $40,00 and ROB2 to a loss of $20,000. 1. Construct a payoff matrix showing the 3 possible alternatives and the associated profits or losses under the 2 market conditions 2. Showing all calculations, what is the optimum action and its expected payoffif George is an optimist? 3. Showing all calculations, what is the optimum action and its expected payoffif George is a pessimist? 4. Showing all calculations 5. Showing all calculations, what is the optimum action and its expected payoff if George uses the criterion of regret? 6. If George believes that the probability of a favourable market is0.6, showing all calculations determine the optimum action and expected return. 7. What is the expected value of perfect information? and its expected payoff if George follows the Laplace criterion? QUESTION 2 Value of information Student guide to marks: 20-10 for a,2 for b, 6 for c,2 ford Show all calculations to support your answers. You may wish. follow the methods shown in the mpt on Value of Info for a way to answer this question if you Round all probability calculations to 2 decimal places. ng to Qic, Recall the optimum action based on expected volues was to uchnce 0nar wihan ninte QUESTION 2 Value of information Student guide to marks: 20-10 for a, 2 for b, 6 for c, 2 ford Show all calculations to support your answers. You may follow the methods shown in the mp4 on Value of Info for a way to answer this question if you wish. Round all probability calculations to 2 decimal places. Referring to Q1c, Recall the optimum action based on expected volues was to purchase ROBI with an EMV of $14,000 George Goleb is considering the possibility of conducting a survey on the market potential for industrial equipment repair using robots. The cost of the survey is $5,000. The market survey results can be clossified as positive or negotive. Given past experience with the morket survey personnel, the conditional probabilties are p/positive signal favourable market 0.9 and pinegative signafjunfavourable market) o.8 a) Revise the prior probabilities of 0.6 and 0.4 in light of these likely survey results. b) What is the posterior probability of a favourable market given a positive survey result? c) Calculate the EVSI and ENGSL. d) What is the maximum the firm should pay for the market survey?

Answer 1

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