Crain's Christmas Trees is trying to decide if they should plant a new variety of trees. The yield for the new tree is assumed to be uniformly distributed between 500 and 2000 per year by the time the tree reaches maturity. They will be able to sell everything that is produced. However, the revenue per mature tree is assumed to follow the discrete distribution in Figure 1 of the Formula Sheet. The fixed cost to grow the trees is $8,000. The variable cost per tree that reaches maturity and is sold is $35. The profit will be determined using the following equation where P = profit, Y = yield, VC = variable cost per mature tree, FC = fixed cost, and R = revenue per mature tree. P = [Y*(R-VC)]-FC
Using the random numbers 69, 32, 95, and 57 to determine four possible yields for the new tree and using the random numbers 36, 74, 88 and 16 to determine four possible revenues per mature tree for the new tree, simulate four profit scenarios for the new tree.
Based on this small sample, what is the average profit Crain's Christmas Trees will make on the new tree variety per year?
Based on this sample, what is the probability that their profit will be less than $40,000?
What is a state of nature?
Answer
A. Possible outcomes for a chance event that affects the payoff of the decision.
B. The difference between the payoff of the best decision given that you know which state of nature will occur and the payoff of the decision that was made.
C. It is never mutually exclusive or collectively exhaustive.
D. Possible decision options for the decision maker.
What is the maximax approach (also called the optimistic approach) to decision making?
Answer
A. It is find outd using the probabilities of each state of nature occurring.
B. It is the selection of the decision alternative with the largest of all the smallest possible payoff amounts.
C. It is the selection of the decision alternative with the largest of all the largest possible payoff amounts.
D. It is the selection of the decision alternative with the smallest of all the largest regrets.
When using the formula Sumproduct in Excel for values (1, 2, 3, 4) and (2, 2, 4, 4) the result would be...
Answer
A. 102
B. 24
C. 88
D. 34