Operations and Management (TQM) - Practice Set PDF

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This material is a set of questionnaire and answer key which could be a good practice material for examinations. This Covers Chapter 1 to 3....

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Student: ___________________________________________________________________________ 1. Decision trees, with their predetermined analysis of a situation, are really not useful in making health care decisions since every person is unique. True False

2. Bounded rationality refers to the limits imposed on decision-making because of costs, human abilities, time, technology, and/or availability of information. True False

3. In reaching a decision, the alternative with the lowest cost should be ranked #1. True False

4. The expected monetary value approach is most appropriate when the decision-maker is risk-neutral. True False

5. The value of perfect information is inversely related to losses predicted. True False

6. Expected monetary value gives the long-run average payoff if a large number of identical decisions could be made. True False

7. Among decision environments, risk implies that certain parameters have probabilistic outcomes. True False

8. Among decision environments, uncertainty implies that states of nature have wide ranging probabilities associated with them. True False

9. In decision theory, states of nature refer to possible future conditions. True False

10. The maximin approach involves choosing the alternative with the highest payoff. True False

11. The maximin approach involves choosing the alternative that has the "best worst" payoff. True False

12. The Laplace criterion treats states of nature as being equally likely. True False

13. The maximax approach is a pessimistic strategy. True False

14. A weakness of the maximin approach is that it loses some information. True False

15. The expected value approach applies to decision-making under uncertainty. True False

16. The expected value approach is used for decision-making under risk. True False

17. The EVPI indicates an upper limit on the amount a decision-maker should be willing to spend to obtain additional information. True False

18. Graphical sensitivity analysis is limited to cases with no more than two alternatives. True False

19. Graphical sensitivity analysis is used for decision-making under risk. True False

20. An advantage of decision trees compared to payoff tables is that they permit us to analyze situations involving sequential decisions. True False

21. A. B. C. D. E.

The term sub-optimization is best described as the: result of individual departments making the best decisions for their own areas limitations on decision-making caused by costs and time result of failure to adhere to the steps in the decision process result of ignoring symptoms of the problem none of the above

22. A. B. C. D. E.

Which phrase best describes the term bounded rationality? thinking a problem through clearly before acting taking care not to exhaust limited resources the result of departmentalized decision making limits imposed on decision making by costs, time, and technology the use of extremely structured steps in the decision making process

23. Testing how a problem solution reacts to changes in one or more of the model parameters is called: A. simulation B. sensitivity analysis C. priority recognition D. analysis of variance E. decision analysis

24. A. B. C. D. E.

Sensitivity analysis is required because _______. payoffs and probabilities are estimates most decision will affect employees expected payoffs are sensitive to the time value of money it's the second step in the decision model with the passage of time, small decisions get bigger

25. A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a/an: A. payoff table B. feasible region C. LaPlace table D. decision tree E. payback period matrix

26. A. B. C. D. E.

Which of the following characterizes decision-making under uncertainty? Decision-makers must rely on probabilities in assessing outcomes. The likelihood of possible future events is unknown. Relevant parameters have known values. Certain parameters have probabilistic outcomes. none of the above

27. A. B. C. D. E.

Which of the following is not an approach for decision-making under uncertainty? decision trees maximin maximax minimax regret Laplace

28. Determining the worst payoff for each alternative and choosing the alternative with the "best worst" is the approach called: A. minimin B. maximin C. maximax D. minimax regret E. Laplace

29. Determining the average payoff for each alternative and choosing the alternative with the highest average is the approach called: A. minimin B. maximin C. maximax D. minimax regret E. Laplace

30. A. B. C. D. E.

The maximin approach to decision-making refers to: minimizing the maximum return maximizing the minimum return maximizing the minimum expected value choosing the alternative with the highest payoff choosing the alternative with the minimum payoff

31. A. B. C. D. E.

Which one of these is not used in decision-making under risk? EVPI EMV decision trees minimax regret All are used for risk situations.

32. A. B. C. D. E.

The term opportunity loss or regret is most closely associated with: minimax regret maximax maximin expected monetary value Laplace

33. The expected monetary value criterion (EMV) is the decision-making approach used with the decision environment of: A. certainty B. risk C. uncertainty D. all of the above E. none of the above

34. A. B. C. D. E.

A decision tree is: an algebraic representation of alternatives a behavioral representation of alternatives a matrix representation of alternatives a schematic representation of alternatives limited to a maximum of 12 branches

35. the A. B. C. D. E.

The difference between expected payoff under certainty and expected payoff under risk is expected: monetary value value of perfect information net present value rate of return profit

36. If the minimum expected regret is computed, it indicates to a decision-maker the expected: A. value of perfect information B. payoff under certainty C. monetary value D. payoff under risk E. none of the above

37. A. B. C. D. E.

The term sensitivity analysis is most closely associated with: maximax maximin decision-making under risk minimax regret Laplace criterion

38. A manager has developed the following payoff table that indicates the profits associated with a set of alternatives under two possible states of nature.

Answer the following questions: (A) If the manager uses maximin as the decision criterion, which of the alternatives would be indicated? (B) If the manager uses minimax regret as the criterion, which alternative would be indicated? (C) Determine the expected value of perfect information if P(S2) = .40. (D) Determine the range of P(S2) for which each alternative would be optimal.

39. A manager's staff has compiled the information below which pertains to four capacity alternatives under four states of nature. Values in the matrix are present value in thousands of dollars.

(A) Assuming a maximax strategy, which alternative would be chosen? (B) If maximin were used, which alternative would be chosen? (C) If states of nature are equally likely and an expected value criterion of maximization is used, which alternative would be chosen?

40. A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A, $30,000 for B, $45,000 for C, and $60,000 for D if state of nature 1 occurs; and $60,000 for A, $80,000 for B, $90,000 for C, and $35,000 for D if state of nature 2 occurs. (A) Assuming maximax is used, what alternative would be chosen? (B) Assuming maximin is used, what alternative would be chosen? (C) If P(State of Nature 1) is .40, what alternative has the highest expected monetary value? (D) Determine the range of P(S2) for which each alternative would be optimal.

41. A manager is quite concerned about the recent deterioration of a section of the roof on a building that houses her firm's computer operations. According to her assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis: I, which has a probability of occurrence of .5; II, which has a probability of .3; and III, which has a probability of .2. If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000. If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C. (A) Draw a decision tree for this problem. (B) Using expected monetary value, which alternative should be chosen?

*PV for profits ($000)

42. A. B. C. D. E.

The maximax strategy would be: buy lease rent high low

43. A. B. C. D. E.

The maximin strategy would be: buy lease rent high low

44. A. B. C. D. E.

The minimax regret strategy would be: buy lease rent high low

45. A. B. C. D. E.

If P(high) is .60, the choice for maximum expected value would be: buy lease rent high low

*PV for profits ($000)

46. A. B. C. D. E.

The maximax strategy would be: small Medium med.-large large ex-large

47. A. B. C. D. E.

The maximin strategy would be: small Medium med.-large large ex-large

48. A. B. C. D. E.

The minimax regret strategy would be: small Medium med.-large large ex-large

49. If yes and no are equally likely, which alternative has the largest expected monetary value? A. small B. Medium C. med.-large D. large E. ex-large

*PV for profits ($000)

50. A. B. C. D. E.

51. A. B. C. D. E.

52. A. B. C. D. E.

The maximax strategy would be: A B C D E

The maximin strategy would be: A B C D E

The minimax regret strategy would be: A B C D E

53. With equally likely states of nature, the alternative that has the largest expected monetary value is: A. A B. B C. C D. D E. E

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services and has estimated demand in three categories low, medium and high

54. A. B. C. D. E.

If she uses the maximax criterion, how many beauticians will she decide to hire? one two three either one or two either two or three

55. A. B. C. D. E.

If she uses the Laplace criterion, how many beauticians will she decide to hire? one two three either one or two either two or three

56. A. B. C. D. E.

If she uses the minimax regret criterion, how many beauticians will she decide to hire? one two three either one or two either two or three

57. If she feels the chances of low, medium, and high demand are 50%, 20%, and 30% respectively, what are the expected annual profits for the number of beauticians she will decide to hire? A. $54,000 B. $55,000 C. $70,000 D. $80,000 E. $135,000

58. If she feels the chances of low, medium, and high demand are 50%, 20%, and 30% respectively, what is her expected value of perfect information? A. $54,000 B. $55,000 C. $70,000 D. $80,000 E. $135,000

The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows:

59. A. B. C. D. E.

If he uses the maximin criterion, which size bus will he decide to purchase? small Medium large either small or Medium either medium or large

60. A. B. C. D. E.

If he uses the Laplace criterion, which size bus will he decide to purchase? small Medium large either small or Medium either medium or large

61. A. B. C. D. E.

If he uses the minimax regret criterion, which size bus will he decide to purchase? small Medium large either small or Medium either medium or large

62. If he feels the chances of low, moderate, and high demand are 30%, 30%, and 40% respectively, what is the expected annual profit for the bus that he will decide to purchase? A. $15,000 B. $61,000 C. $69,000 D. $72,000 E. $87,000

63. If he feels the chances of low, moderate, and high demand are 30%, 30%, and 40% respectively, what is his expected value of perfect information? A. $15,000 B. $61,000 C. $69,000 D. $72,000 E. $87,000

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows:

64. A. B. C. D. E.

If he uses the maximax criterion, which alternative will he decide to select? do nothing expand build new either do nothing or expand either expand or build new

65. A. B. C. D. E.

If he uses the Laplace criterion, which alternative will he decide to select? do nothing expand build new either do nothing or expand either expand or build new

66. A. B. C. D. E.

If he uses the minimax regret criterion, which alternative will he decide to select? do nothing expand build new either do nothing or expand either expand or build new

67. If he feels the chances of low, normal, and high precipitation are 30%, 20%, and 50% respectively, what are expected long-run profits for the alternative he will select? A. $140,000 B. $170,000 C. $285,000 D. $305,000 E. $475,000

68. If he feels the chances of low, normal, and high precipitation are 30%, 20%, and 50% respectively, what is his expected value of perfect information? A. $140,000 B. $170,000 C. $285,000 D. $305,000 E. $475,000

The local operations manager for the Internal Revenue Service must decide whether to hire one, two, or three temporary tax examiners for the upcoming tax season. She estimates that net revenues (in thousands of dollars) will vary with how well taxpayers comply with the new tax code just passed by Congress, as follows:

69. A. B. C. D. E.

If she uses the maximin criterion, how many new examiners will she decide to hire? one two three either one or two either two or three

70. A. B. C. D. E.

If she uses the Laplace criterion, how many new examiners will she decide to hire? one two three either one or two either two or three

71. A. B. C. D. E.

If she uses the minimax regret criterion, how many new examiners will she decide to hire? one two three either one or two either two or three

72. If she feels the chances of low, medium, and high compliance are 20%, 30%, and 50% respectively, what are the expected net revenues for the number of assistants she will decide to hire? A. $26,000 B. $46,000 C. $48,000 D. $50,000 E. $76,000

73. If she feels the chances of low, medium, and high compliance are 20%, 30%, and 50% respectively, what is her expected value of perfect information? A. $16,000 B. $26,000 C. $46,000 D. $48,000 E. $50,000

The construction manager for Acme Construction, Inc. must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows:

74. A. B. C. D. E.

If he uses the maximin criterion, which kind of dwellings will he decide to build? single family apartments condominiums either single family or apartments either apartments or condos

75. A. B. C. D. E.

If he uses the Laplace criterion, which kind of dwellings will he decide to build? single family apartments condos either single family or apartments either apartments or condos

76. A. B. C. D. E.

If he uses the minimax regret criterion, which kind of dwellings will he decide to build? single family apartments condos either single family or apartments either apartments or condos

77. and A. B. C. D. E.

If he feels the chances of declining, stable, and growing population trends are 40%, 50%, 10%, respectively, which kind of houses will he decide to build? single family apartments condos either single family or apartments either apartments or condos

78. and A. B. C. D. E.

If he feels the chances of declining, stable, and growing population trends are 40%, 50%, 10%, respectively, what is his expected value of perfect information? $187,000 $132,000 $123,000 $65,000 $55,000

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows:

79. A. B. C. D. E.

If she uses the maximax criterion, what size outlet will she decide to lease? small Medium large either small or Medium either medium or large

80. A. B. C. D. E.

If she uses the maximin criterion, what size outlet will she decide to lease? small Medium large either small or Medium either medium or large

81. A. B. C. D. E.

If she uses the Laplace criterion, what size outlet will she decide to lease? small Medium large either small or Medium either medium or large

82. A. B. C. D. E.

If she uses the minimax regret criterion, what size outlet will she decide to lease? small Medium large either small or Medium either medium or large

83. If she feels there is a 30% chance that demand will be high, what are the expected monthly profits for the outlet she will decide to lease? A. $1,600 B. $1,100 C. $1,000 D. $900 E. $500

84. If she feels there is a 30% chance that demand will be high, what is her expected payoff under certainty? A. $1,600 B. $1,100 C. $1,000 D. $900 E. $500

85. If she feels there is a 30% chance that demand will be high, what is her expected value of perfect information? A. $1,600 B. $1,100 C. $1,000 D. $900 E. $500

86. For what range of probability that demand will be high, will she decide to lease the small facility? A. 0 - .25 B. 0 - .33 C. .25 - .5 D. .33 - 1 E. .5 - 1

87. For what range of probability that demand will be high, will she decide to lease the medium facility? A. 0 - .25 B. 0 - .33 C. .25 - .5 D. .33 - 1 E. .5 - 1

88. For what range of probability that demand will be high, will she decide to lease the large facility? A. 0 - .25 B. 0 - .33 C. .25 - .5 D. .33 - 1 E. .5 - 1

The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend this month's budget for advertising on print media, television, or a mixture of the two. She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:

89. A. B. C. D. E.

If she uses the maximax criterion, which advertising strategy will she use? print mixed television either print or mixed either mixed or television

90. A. B. C. D. E.

If she uses the maximin criterion, which advertising strategy will she use? print mixed television either print or mixed either mixed or television

91. A. B. C. D. E.

If she uses the ...