1 To find the correct answer full Excel file outlining the solution must be submitted. To find the correct answer for Case 1 full Excel file outlining the solution must be submitted. For case 1 solution, please, use Excel function SUMPRODUCT, MAX, MIN A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: 1.Using the optimistic criterion, which alternative is best? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 E) Machine 5 Answer: A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: 2.Using the pessimistic criterion, which alternative is best? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 2 E) Machine 5 Answer: A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: 3.What decision should be made based on the minimax regret criterion? Please, develop a regret (EOL) table in the Excel spreadsheet. A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 E) Machine 5 Answer: A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather. 4. Compute expected opportunity loss (EOL) for each alternative. Based on EOL criteria, which alternative would you choose? A) Machine 1 B) Machine 2 3 C) Machine 3 D) Machine 4 E) Machine 5 Answer: A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather. 5. Compute expected monetary value (EMV) for each alternative Based on EMV criteria, which alternative would you choose? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 E) Machine 5 Answer: A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather. 6.What is the EVPI? 4 A) $5.8 B) $6.6 C) $1.6 D) $3.2 E) $7.4 Answer: Appendix: =SUMPRODUCT (array1, [array2]) array1 - The first array or range to multiply, then add. array2 - [optional] The second array or range to multiply, then add. =MAX (array) array - The array from which you want to select the largest value. =MIN(array) array - The array from which you want to select the smallest value. Case 2 (15 points) Bill Holliday is not sure what she should do. He can build a quadplex (i.e., a building with four apartments), build a duplex, gather additional information, or simply do nothing. If he gathers additional information, the results could be either favorable or unfavorable, but it would cost him $3,000 to gather the information. Bill believes that there is a 50-50 chance that the information will be favorable. If the rental market is favorable, Bill will earn $15,000 with the quadplex or $5,000 with the duplex. Bill doesn't have the financial resources to do both. With an unfavorable rental market, however, Bill could lose $20,000 with the quadplex or $10,000 with the duplex. Without 5 gathering additional information, Bill estimates that the probability of a favorable rental market is 0.7. A favorable report from the study would increase the probability of a favorable rental market to 0.9. Furthermore, an unfavorable report from the additional information would decrease the probability of a favorable rental market to 0.4. Of course, Bill could forget all of these numbers and do nothing. What is your advice to Bill? A) Draw the decision tree for the problem. Make sure to include all the nodes for the decisions and states of nature, all the probabilities and all the payoffs in the decision tree. 6 B) Calculate the EMV at each state of nature node. C) Based on the EMV values calculated, what is your advice to Bill? 7 8