Question

Question 1. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000's) based on the different scenarios faced by the manager.

Alternative

Bid Accepted

Bid Rejected

Buy 1 machine

$10

$5

Buy 2 machine

$30

$4

Buy 3 machine

$40

$2

Using the information above, which alternative should be chosen based on the maximax criterion?

Buy 1 machine

Buy 2 machines

Buy 3 machines

Question 2. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000's) based on the different scenarios faced by the manager.

Alternative Bid Accepted Bid Rejected 

Buy 1 machine $10 $5 

Buy 2 machines $30 $4 

Buy 3 machines $40 $2 

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

What is the expected value under certainty?

a. 1.05

b. 1.95

c. 17.25

d. 27.75

Question 3. “The probability of event B, given that event A has occurred” is known as a __________ probability.

continuous

marginal

simple

joint

conditional

Question 4. Assume that you have an urn containing 10 balls of the following description:

4 are white (W) and lettered (L)

2 are white (W) and numbered (N)

3 are yellow (Y) and lettered (L)

1 is yellow (Y) and numbered (N)

If you draw a numbered ball (N), the probability that this ball is white (W) is 0.60.

True

False

Question 5. What is the formula for the break-even point of a simple profit model?

Fixed cost / variable cost per unit

(Selling price per unit — variable cost per unit) / fixed cost

Fixed cost / (selling price per unit —variable cost per unit)

Fixed cost / (variable cost per unit —selling price per unit)

Selling price per unit — (fixed cost / variable cost per unit)