Application assignments require solving problems from the
textbook. Most of the problems require that you use Excel QM. Some chapters
will require you to use POM QM for Windows or TreePlan. The answers must be
submitted to the Dropbox in a Microsoft Word or Microsoft Excel file.
You must state your answers within a complete sentence so that
your understanding of applying the results of the computations can be observed.
You should also include the work for your computation; this will assist in
applying partial credit if your answers are not correct.
Do not submitQM for Windows
files as server security policies do not allow many ofthese files to be
passed in the system. If you need to show the QM work, either save as an Excel
file (a function within QM) or paste a screen capture of the QM Entry Screen
before solving AND the QM result screen(s).
NOTE: QM files
should not be sent through the online system. If using QM for yoursolution,
run the file in QM and then copy and paste the solution into a MS Excel file
(within QM there is an option tab at bottom of the screen to save as MS Excel.)
If you cannot do this, with the QM solution file open on your screen, select
alt-print screen and then paste the image into a MS Excel file.
If you need any assistance, please do not hesitate to contact
your instructor. He or she will be happy to assist.
For this module, you will complete the following problems from
the textbook: Chapter 3, page 107, Problem 24 using Excel/Excel QM and page
110, Problem 37 using TreePlan.
A souvenir retailer has an opportunity to establish a new location inside a large airport. The annual returns will depend primarily on the size of the space she rents and if the economy will be favorable. The retailer has worked with the airport concession commission, and has projected the following possible annual earnings associated with renting a small, medium, large or very large space:
a) What is the souvenir retailer’s maximax decision?
b) What is her maximin decision?
c) What is her equally likely decision?
d) What is her criterion of realism decision, using a = 0.8?
e) What is her minimax decision?
Here is the chart:
Size GoodEconomy FairEconomy PoorEconomy
Small 70,000 28,000 -14,000
Medium 112,000 42,000 -28,000
Large 140,000 42,000 -56,000
Very large 420,000 35,000 -224,000
Shamrock oil owns a parcel of land that has the potential to be an underground oil field. It will cost $500,000 to drill for oil. If oil does exist on the land, shamrock will realize a payoff of $4,000,000 (not including drill cost). With current information, shamrock estimates that there is a 0.2 probability that oil is present on the site. Shamrock also has the option of selling the land as is for $400,000, without further information about the likelihood of oil being present. A third option is to perform geological test at the site, which would cost $100,000. There is a 30% chance that the test results will be positive, after which shamrock can sell the land for $650,000 or drill the land, with a 0.65 probability that oil exists. if the test results are negative, shamrock can sell the land for $50,000 or drill the land, with a 0.05 probability that oil does exists.
a) Using a decision tree, recommend a course of action for Shamrock Oil.