MME3271: Engineering Management I – Sem2, 2015/2016 – Section 4/8 – Assignment #3

1

Name: Matric # Score:

100 Name: Matric #

1. The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of

nature:

Decision Alternative State of Nature

s1 s2 s3

d1 245 95 20

d2 100 100 75

(a) Construct a decision tree for this problem [10 points]

(b) If the decision maker knows nothing about the probbilities of the three states of nature, what is the recommended decision

using the optimistic, conservative, and minimax regret approaches? [15 point]

2. Suppose that a decision maker faced with four decision alternatives and four states of nature develops the following profit

payoff table:

Decision Alternative State of Nature

s1 s2 s3 s4

d1 13 8 9 4

d2 10 9 7 6

d3 8 9 9 10

d4 8 10 11 13

(a) If the decision maker knows nothing about the probabilities of the four states of nature, what is the recommended decision

using optimistic, conservative, and minimax regret approaches? [15 points]

(b) Assume that the payoff table provides cost rather than profit payoffs. What is the recommended decision using the

optimistic, conservative, and minimax regrets approaches? [15 points]

3. Southland Corporation’s decision to produe a new line of recreational products resulted in the need to construct either a

small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To

conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The

following payoff table shows the projected profit in million of dollars.

Plant Size Long-run Demand

Low Medium High

Small 145 195 195

Large 50 200 500

(a) What is the decision to be made, and what is the change event for Southland’s problem? [10 points]

(b) Construct an influence diagram [10 points]

(c) Construct a decision tree [10 points]

(d) Recommend a decision based on the use of optimistic, conservative, and minimax regret approaches [15 points]