From the following payoff table Alternatives State of Nature favorable unfavorab
ID: 3048455 • Letter: F
Question
From the following payoff table
Alternatives
State of Nature
favorable
unfavorable
Alternative 1
50
–40
Alternative 2
30
–20
Alternative 3
0
0
Probability
0.7
0.3
What decision will you take using Expected monetary value method?
What decision will you take using Expected Opportunity loss method?
5. Daily demand for newspapers for the last 5 days given in the following table:
Day
Demand
Sunday
10
Monday
14
Tuesday
12
Wednesday
10
Thursday
11
Friday
--
Forecast demand for Friday using a three-day moving average.
Using weight 2 for Wednesday and 3 for Thursday, Forecast demand for Friday using weighted moving average.
Forecast demand for Friday using simple exponential smoothing assuming that forecast for Thursday is 9 and smoothing constant = 0.6
Alternatives
State of Nature
favorable
unfavorable
Alternative 1
50
–40
Alternative 2
30
–20
Alternative 3
0
0
Probability
0.7
0.3
Explanation / Answer
Ans:
1)
a)Expected monetary value(EMV) method:
EMV for Alternative 1=50*0.7-40*0.3=23
EMV for Alternative 2=30*0.7-20*0.3=15
EMV for Alternative 3=0*0.7-0*0.3=0
Expected monetary value is maximum for Alternative 1,so choose Alternative 1.
b)Expected Opportunity loss(EOL) method:
EOL for Alternative 1=0*0.7+40*0.3=12
EOL for Alternative 2=20*0.7+20*0.3=20
EOL for Alternative 3=50*0.7+0*0.3=35
Expected opportunity loss is minimum for Alternative 1,so choose Alternative 1.
Opportunity loss or regret table: Event 1 Event 2 EMV Alternative 1 50 -40 23 Alternative 2 30 -20 15 Alternative 3 0 0 0Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.