Is determining the range of probability for which an alternative has the best expected payoff?

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Problem 13-08 (Algorithmic) The following payoff table shows the profit for decision problem with two states of nature and two decision alternatives: State of Nature Decision Alternative d 2 10 Use graphical sensitivity analysis to determine the range of probabilities of state of nature the largest expected value If required, round your answers to two decimal places for which each of the decision alternatives has d1 is optimal for probability of 5 1 dz is optimal for probability of s b. Suppose P(s1) 0.8 and P(s2) 0.2_ What is the best decision using the expected value approach? Best decision: Perform sensitivity analysis on the payoffs for decision alternative d1 Assume the probabilities are as given in part (b), and find the range of payoffs under states of nature 51 and S2 that will keep the solution found in part (b) optimal: Is the solution more sensitive to the payoff under state of nature S1 or S2? The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Chapter 5

Break Even Point (BEP) (185):  The volume of output at which total cost and total revenue are equal: no profit or loss occurs.  From:  Evaluating Alternatives

Capacity (169):  The upper limit or ceiling on the load that an operating unit can handle. Chapter Introduction

Capacity Cushion (175):  Extra demand intended to offset uncertainty.  Potential to achieve output levels exceeding the originally expected output levels.  From: Strategy Formulation. 

Cash Flow (187):  Difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.  From:  Evaluating Alternatives

Diseconomies of Scale (181):  If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs.  From:  Developing Capacity Alternatives

Economies of Scale (181):  If the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs.  From:  Developing Capacity Alternatives

Outsource (177):  Obtain a good or service from an external provider.  From:  Make or Buy

Present Value (187):  The sum, in current value, of all future cash flows of an investment proposal.  From:  Evaluating Alternatives

Bronmounded Rationality (196):  The limitations on decision making caused by costs, human abilities, time, technology, and availability of information.  From:  Causes of Poor Decisions

Certainty (197):  Envient in which relevant parameters have known values.  From:  Decision Environments

Decision Tree (200):  A schematic representation of the available alternatives and their possible consequences.  From:  Decision Trees

Expected Monetary Value (EMV) Criterion (199):  The best expected value among the alternatives.  From:  Decision Making Under Risk

Expected Value of Perfect Information (EVPI) (202):  The difference between the expected payoff with the perfect information and the expected payoff under risk.  From:  Expected Value of Perfect Information

Laplace (198):  Choose the alternative with the best average payoff of any of the alternatives.  From:  Decision Making Under Uncertainty

Maximax (198):  Choose the alternative with the best possible payoff.  From:  Decision Making Under Uncertainty

Maximin (198):  Choose the alternative with the best of the worst possible payoffs.  From:  Decision Making Under Uncertainty

Minimax Regret (198):  Choose the alternative that has the least of the worst regrets.  From:  Decision Making Under Uncertainty

Regret / Opportunity Losses (199):  The difference between a given payoff and the best payoff for a state of nature.  From:  Decision Making Under Uncertainty

Payoff Table (196):  Table showing the expected payoffs for each alternative in every possible state of nature.  From:  Introduction

Risk (197):  Environment in which certain future events have probable outcomes.  From:  Decision Environments

Sensitivity analysis (203):  Determining the ranges of probability for which an alternative has the best expected payoff.  From:  Sensitivity analysis

Suboptimization (197):  The result of different departments each attempting to reach a solution that is optimum for that department.  From:  Causes of Poor Decisions

Uncertainty (197):  Environment in which it is impossible to assess the likelihood of various future events.  From Decision Environments