Optimistic Decision Maker Assignment Help

Optimistic Decision Maker Assignment Help

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Ken Brown is the principal owner of Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:

For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $225,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $250,000. But Ken has always been a very optimistic decision maker.

What type of decision is Ken facing?

What decision criterion should he used?

What alternative is best?

Although Ken Brown is the principal owner of Oil Inc, 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, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?

Question #2 – The Lubricant is an expensive oil newsletter to which many oil giants subscribe, including Ken Brown (see the above table). In the last issue, the letter described how the demand for oil products would be extremely high. Apparently, the American consumer will continue to use oil products even if the price of these products doubles. Indeed, one of the articles in the Lubricant states that the chances of a favorable market for oil products was 75%, while the chance of an unfavorable market was only 25%. Ken would like to use these probabilities in determining the best decision.

What decision model should be used?

What is the optimal decision?

Question #3 – A group of medical professionals is considering the construction of a private clinic. If the medical demand is high (i.e., there is a favorable market for the clinic), the physicians could realize a net profit of $175,000. If the market is not favorable, they could lose $35,000. Of course, they don’t have to proceed at all, in which case there is no cost. In the absence of any market data, the best the physicians can guess is that there is a 50–50 chance the clinic will be successful. Construct a decision tree to help analyze this problem. What should the medical professionals do?

Question #4 – Jerry Smith is thinking about opening a bicycle shop in his hometown. Jerry loves to take his own bike on 50-mile trips with his friends, but he believes that any small business should be started only if there is a good chance of making a profit. Jerry can open a small shop, a large shop, or no shop at all. The profits will depend on the size of the shop and whether the market is favorable or unfavorable for his products.

Because there will be a 5-year lease on the building that Jerry is thinking about using, he wants to make sure that he makes the correct decision. Jerry is also thinking about hiring his old marketing professor to conduct a marketing research study. If the study is conducted, the study could be favorable (i.e., predicting a favorable market) or unfavorable (i.e., predicting an unfavorable market).

Develop a decision tree for Jerry. Do not use the decision tree option in Excel QM. It is clunky and very much useless. Just draw a decision tree right into Excel using the Insert Shapes feature.  Then you can use the adjacent cells to do your calculation for Question 5.

Question #5 – Jerry Smith (see above Problem) has done some analysis about the profitability of the bicycle shop. If Jerry builds the large bicycle shop, he will earn $55,000 if the market is favorable, but he will lose $35,000 if the market is unfavorable. The small shop will return a $35,000 profit in a favorable market and a $5,000 loss in an unfavorable market. At the present time, he believes that there is a 50–50 chance that the market will be favorable.

His old marketing professor will charge him $5,000 for the marketing research. It is estimated that there is a 0.7 probability that the survey will be favorable. Furthermore, there is a 0.9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Jerry that there is only a probability of 0.12 of a favorable market if the marketing research results are not favorable. Jerry is confused.

Please present your decision tree with the calculations and a brief description of your findings. What decision should Jerry make? Should he pay for the survey? If so why?

How sensitive is Jerry’s decision to the outcome of the marketing survey?

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