Mat 540 Week 2 Homework - Latest 2015

MAT 540 Week 2 Homework - latest 2015

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Chapter 12

1. A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment:

Gasoline Availability

Investment

Shortage

Stable Supply

Surplus

Motel

$-8,000

$15,000

$20,000

Restaurant

2,000

8,000

6,000

Theater

6,000

6,000

5,000

Determine the best investment, using the following decision criteria.

a. Maximax

b. Maximin

c. Minimax regret

d. Hurwicz (α = 0.4)

e. Equal likelihood

B A concessions manager at the Tech versus A&M football game must decide whether to have the vendors sell sun visors or umbrellas. There is a 30% chance of rain, a 15% chance of overcast skies, and a 55% chance of sunshine, according to the weather forecast in College Junction, where the game is to be held. The manager estimates that the following profits will result from each decision, given each set of weather conditions:

Weather Conditions

Decision

Rain

Overcast

Sunshine

.30

.15

.55

Sun visors

$-500

$-200

$1,500

Umbrellas

2,000

0

-900

a. Compute the expected value for each decision and select the best one.

b....