BA520 my 3rd week question set by billthedoc

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									BA520 QA Week 3 – Decision Analysis

Dr. Steve Tvorik, Instructor

Answer the following questions. Please submit all work showing how you arrived at the answer.

Chapter 3: Problems 3-17, 3-19, 3-22, 3-23, 3-28, 3-29, 3-32, 3-40, 3-41, and 3-42.

3.17      Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making
the company a financial success. Bob is vice president of finance. Bob attributes his success to his
pessimistic attitude about business and the oil industry. Given the information from problem 3-16, it is
likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what
alternative will he select?

Equipment                        Favourable Mkt($)                     Unfavourable Mkt($)

Sub 100                          $ 300,000.00                          $(200,000.00)
Oiler J                          $ 250,000.00                          $(100,000.00)
Texan                            $ 75,000.00                           $ (18,000.00)


SOLUTION: Ken is using MAXIMAX criterion and should select Sub 100 because it has the maximum
payoff of $300000. As Bob is more pessimistic, He should use MAXIMIN criterion.

Equipment               Favourable Mkt($)              Unfavourable Mkt($)          Row minimum

Sub 100                 $      300,000.00             $ (200,000.00)           $ (200,000.00)
Oiler J                 $      250,000.00             $ (100,000.00)           $ (100,000.00)
Texan                   $       75,000.00             $ (18,000.00)            $ (18,000.00)
                                                                       Maximin $ (18,000.00)
Using Maximin criterion, Bob Brown would select Texan as the worst payoff, since this alternative is better
than the
								
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