MAT 540 WEEK 2
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3) A local real estate investor in Orlando is considering three alternative investments: a motel, a theater, or a restaurant. |
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The motel and restaurant will be adversely or favorably affected by the availability of gasoline and the number of tourists, |
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while the theater will be relatively stable under any conditions. |
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The following payoff table shows the profit ( or losses) resulting from each investment. |
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Determine the best investment using the following decision criteria: |
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a) Maximax |
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$20,000 |
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b) Maximin |
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$5,000 |
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c) Minimax regret |
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$14,000 |
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d)Hurwicz (0.4 |
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$9,000 |
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e). Equal Likelihood |
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$3600 |
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Gasoline Availability |
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Investment |
Shortage |
Stable |
Surplus |
Max |
Min |
Mean |
Motel |
($8,000) |
$15,000 |
$20,000 |
$20,000 |
($8,000) |
$9,000 |
Restaurant |
$2,000 |
$8,000 |
$6,000 |
$8,000 |
$2,000 |
$5,333 |
Theater |
$6,000 |
$6,000 |
$5,000 |
$6,000 |
$5,000 |
$5,667 |
Ideal |
$6,000 |
$15,000 |
$20,000 |
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Regret Table |
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Investment |
Shortage |
Stable |
Surplus |
Max |
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Motel |
$14,000 |
$0 |
$0 |
$14,000 |
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Restaurant |
$4,000 |
$7,000 |
$14,000 |
$14,000 |
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Theater |
$0 |
$9,000 |
$15,000 |
$15,000 |
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2.
Determine the best weather |
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$645 |
=> Mark |
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and the expected value of perfect information. |
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$780 |
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Weather Condition |
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Decision |
Rain |
Overcast |
Sunshine |
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Probabilities |
30% |
15% |
55% |
EMV |
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Sun Visitors |
($500) |
($200) |
$1,500 |
$645 |
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Umbrellas |
$2,000 |
$0 |
($900) |
$105 |
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Ideal |
$2,000 |
$0 |
$1,500 |
$1,425 |
EVUPI |
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Regret Table |
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LOW |
MEDIUM |
HIGH |
Max |
EOL |
Probabilities |
30% |
15% |
55% |
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Sun Visitors |
($500) |
($200) |
$1,500 |
$1,500 |
$645 |
Umbrellas |
$2,000 |
$0 |
($900) |
$2,000 |
$105 |
3.
Determine the project to invest |
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$ 1.76 (office park) |
=> Mark |
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and the expected value of perfect information. |
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$ 0.30 |
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Interest Rate |
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Decision |
Decline |
Stable |
Increase |
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Probabilities |
50% |
40% |
10% |
EMV |
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Office park |
$ 0.50 |
$ 1.70 |
$ 4.50 |
$ 1.38 |
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Office building |
$ 1.50 |
$ 1.90 |
$ 2.50 |
$ 1.76 |
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Warehouse |
$ 1.70 |
$ 1.40 |
$ 1.00 |
$ 1.51 |
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Mall |
$ 0.70 |
$ 2.40 |
$ 3.60 |
$ 1.67 |
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Conominiums |
$ 3.20 |
$ 1.50 |
$ 0.60 |
$ 2.26 |
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Ideal |
$ 1.70 |
$ 1.90 |
$ 4.50 |
$ 2.06 |
EVUPI |
4.
Determine the best decision using the following decision criteria. |
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a) Maximax |
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$260,000 |
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b) Maximin |
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$150,000 |
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c) Equal likelihood |
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$200833 |
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d) Hurwicz (0.5) |
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$40166.6 |
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Economic Conditions |
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Degree Program |
Recession |
Average |
Good |
Robust |
Max |
Min |
Mean |
Graphic Design |
$145,000 |
$175,000 |
$220,000 |
$260,000 |
$260,000 |
$145,000 |
$200,833 |
Nursing |
$150,000 |
$180,000 |
$205,000 |
$215,000 |
$180,000 |
$150,000 |
$165,000 |
Real Estate |
$115,000 |
$165,000 |
$220,000 |
$320,000 |
$165,000 |
$115,000 |
$140,000 |
Medical technology |
$130,000 |
$180,000 |
$210,000 |
$280,000 |
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Culinary Technology |
$ 115,000.00 |
$145,000.00 |
$235,000.00 |
$ 305,000.00 |
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Computer technology |
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Ideal |
$150,000 |
$180,000 |
$235,000 |
$320,000 |
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5.
The best decision is compact cars (240000)
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2
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4
4
3
2
1
240000
180000
140000