Assignment 1
The criteria used in a preference matrix
can be scored on any scale.
All of the following statements are true of decision trees EXCEPT:
A. Square nodes represent decision points. B. Payoffs are often expressed as the present value of net profits. C. The expected payoff must always equal zero. *** D. Probabilities for all branches leaving a chance node must always sum to 1.0.
In Decision Theory, decision elements that have an impact on the outcome of the choice but are not under the manager's control are called
All the above a. states of nature b. events c. chance events
The formal procedure that helps the manager choose the best alternative when outcomes are uncertain is which of the following procedures?
Decision theory
For decision making under uncertainty, identify the decision rule that is appropriate for the optimist.
Maximax
What decision-making condition must exist for the decision tree to be a valuable tool?
Risk
Which statement regarding break-even analysis is best?
The slope of the total cost line is the variable cost.
Decision making situations that include which of the following characteristics require a Preference Matrix approach?
multiple criteria cannot be merged into a single measure
The branches leaving a chance node on a decision tree must
sum to 1.0
Graphically, what occurs at the break-even quantity?
the total revenue line crosses the total cost line
After drawing a decision tree, we solve it by working from right to left. When calculating the expected payoff for each event node,
we multiply the payoff of each event branch by the event's probability and then add these products.
Which one of the following statements about break-even analysis, as we applied it to evaluating products or services, is best?
Break-even analysis assumes that the cost function is linear and consists of fixed costs plus variable cost times volume.