A plant manager considers the operational cost per hour of five machine alternat
ID: 445102 • Letter: A
Question
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.
a) An optimistic decision maker would choose which alternative?
b) An pessimistic decision maker would choose which alternative?
c) An equally likely decision maker would choose which alternative?
d) Using expected monetary value which alternative would be chosen?
Explanation / Answer
A). Machine 4. Being optimistic, the mild weather has the maximum probability and hence the min cost is for machine 4.
B). Pessimist will go for machine 5. Have same cost for Cold and Warm weather and min cost for mild weather
C). Either MAchine 3 or 4 basis the weighted calculation
D). I will opt for machine 3.
Probability 30% 50% 20% Alternatives Cold Cost/day Mild Cost/day Warm Cost/day Cost / Hour Machine 1 $ 50 $ 40 $ 45 $ 44 Machine 2 $ 45 $ 42 $ 47 $ 44 Machine 3 $ 40 $ 35 $ 54 $ 40 Machine 4 $ 60 $ 25 $ 48 $ 40 Machine 5 $ 45 $ 40 $ 45 $ 43Related Questions
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