S1-2. A global economist hired by Telecomp, the U.S.-based computer manufacturer estimates
that the probability that the economic and political climate overseas and in Mexico will decline
during the next five years is 0.30, the probability that it will remain approximately the same is
0.40, and the probability that it will improve is 0.30. Determine the best country to construct the
new facility in and the expected value of perfect information.
S1-4. The Landloc real estate development firm has hired an economist to assign a probability to
each direction interest rates may take over the next five years. The economist has determined that
there is a 0.50 probability that interest rates will decline, a 0.40 probability that rates will remain
stable, and a 0.10 probability that rates will increase.
 a.Using expected value, determine the best project.
 b.Determine the expected value of perfect information.
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Using expected value, determine her best investment decision.
S1-6. The Tech football coaching staff has six basic plays it runs every game. Tech has an
upcoming game against State on Saturday, and the coaches know State employs five different
defenses. The coaches have estimated the number of yards Tech will gain with each play
against each defense, as shown in the following payoff table.
If the coaches employ an offensive game plan, they will use the maximax criterion. What will
their best play be?
b. If the coaches employ a defensive plan, they will use the maximin criterion. What will their
best play be?
c. What will their best play be if State is equally likely to use any of its defenses?
d. The Tech coaches have reviewed game films and have determined the following
probabilities that State will use each of its defenses.
Using expected value, rank Tech's plays from best to worst. During the actual game, Tech has a
third down and 10 yards to go and the coaches are 60% certain State will blitz, with a 10%
chance of any of the other four defenses. What play should Tech run, and is it likely Tech will
make the first down?
S1-8. John Wiley Publishing Company publishes an operations management textbook that is
scheduled for a revision. The book has been moderately successful, but each year more new
books enter the market, some existing books are dropped by publishers, and various innovative
pedagogical approaches are introduced by authors and publishers, such that the competitive
market is always highly uncertain. In addition, the role the Internet will play in future textbook
publishing is an unknown. As a result, Wily is trying to decide whether to publish the next
edition of the OM book as a smaller paperback, publish a new edition very similar in size and
content to the current edition, significantly revise the book with an emphasis on services and
processes, or make a major revision with significant physical changes including adding color and
more graphics. The following payoff table summarizes the possible revision decisions with
profits (or losses) for the three year life cycle of the new edition, and the future states of nature
relative to the competitive market.
Determine the best decision for the publisher using the following criteria.
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a.Maximax
b.Minimax
c.Equal likelihood
d.Hurwicz (α = .35)
S1-10. Amtrex International is a major U.S.-based electronics firm that manufactures a number
of electronic components for domestic and global consumer electronics companies. It imports
most of its materials and the components used in its products to the United States from overseas
suppliers. Amtrex is in the process of trying to improve its global supply chain operations, and as
part of this process the company wants to determine a single supplier located at one of the major
ports around the world to contract with for the majority of its business. The company is
considering six suppliers, each located at one of the following ports: Hong Kong, Singapore,
Shanghai, Busan, and Kaohsiung. The company has estimated the possible profit (or loss) it
might achieve with each of the potential suppliers depending on a variety or possible future
company and port conditions, including IT capability, port growth and expansion, ship and
container availability, security, regional market and political environment, and transport to the
port from the supplier's suppliers. Depending on these various factors, further supplier and port
conditions could decline, grow and expand, or remain the same. The following payoff table
summarizes the increased outcomes (in $ millions) for the potential suppliers and the possible
future sates of nature for a specific time frame.
Determine the best decision using each of the following criteria.
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a.Maximax
b.Maximin
c.Equal likelihood
d.Hurwicz (α = 0.65)
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e.Minimax regret
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