1. (50 points) Consider the following sequential decision problem. Suppose that you are interested in producing...

 

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1. (50 points) Consider the following sequential decision problem. Suppose that you are interested in producing and marketing a new product composed of two parts namely Part X and Part Y. The decision is a "make or buy" decision for both parts X and Y. The cost estimates and their probabilities are as follows: D₁ = Produce part X D₂ Buy part X Cost per unit Probability Probability Cost per unit 37.0 35.00 0.25 0.10 42.50 0.25 43.0 0.40 45.00 0.37 46.0 0.30 49.00 0.13 50.0 0.20 D3 Produce part Y D4 Buy part Y Cost per unit Probability Cost per unit Probability 250.00 0.43 219.00 0.15 300.50 0.57 355.00 0.85 a) Draw two (separate) decision trees for parts X and Y and calculate the EMVs for each decision alternative. Answer questions (b), (c), and (d) for part X only; b) Which decision alternative would you recommend for part X only in terms EMVs? c) Construct a cumulative risk profile to support your recommendation for part X. d) Is there a dominance condition between decision alternatives, justify your answer. Combine the two decision trees you have drawn in question (a) in a single tree and answer the following; e) Draw the combined tree. f) Which decision strategy is the best? 1. (50 points) Consider the following sequential decision problem. Suppose that you are interested in producing and marketing a new product composed of two parts namely Part X and Part Y. The decision is a "make or buy" decision for both parts X and Y. The cost estimates and their probabilities are as follows: D₁ = Produce part X D₂ Buy part X Cost per unit Probability Probability Cost per unit 37.0 35.00 0.25 0.10 42.50 0.25 43.0 0.40 45.00 0.37 46.0 0.30 49.00 0.13 50.0 0.20 D3 Produce part Y D4 Buy part Y Cost per unit Probability Cost per unit Probability 250.00 0.43 219.00 0.15 300.50 0.57 355.00 0.85 a) Draw two (separate) decision trees for parts X and Y and calculate the EMVs for each decision alternative. Answer questions (b), (c), and (d) for part X only; b) Which decision alternative would you recommend for part X only in terms EMVs? c) Construct a cumulative risk profile to support your recommendation for part X. d) Is there a dominance condition between decision alternatives, justify your answer. Combine the two decision trees you have drawn in question (a) in a single tree and answer the following; e) Draw the combined tree. f) Which decision strategy is the best?

Answer rating: 100% (QA)

decision TREE 35 425 45 49 d 0 37 3 014 43 03 46 2 50 ENAV Psg Vij 31 State of Noture N the Number ... View the full answer