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**Instructions **

Question 1. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

- Alternative
- Bid Accepted
- Bid Rejected
- Buy 1 machine
- $10
- $5

Buy 2 machine

- $30
- $4

Buy 3 machine

- $40
- $2

Using the information above, which alternative should be chosen based on the Maximax criterion?

- Buy 1 machine
- Buy 2 machines
- Buy 3 machines

Question 2. A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

- Alternative Bid Accepted Bid Rejected
- Buy 1 machine $10 $5
- Buy 2 machines $30 $4
- Buy 3 machines $40 $2

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

What is the expected value under certainty?

Question 3. “The probability of event B, given that event A has occurred” is known as a __________ probability.

- continuous
- marginal
- simple
- joint
- conditional

Question 4. Assume that you have an urn containing 10 balls of the following description:

- 4 are white (W) and lettered (L)
- 2 are white (W) and numbered (N)
- 3 are yellow (Y) and lettered (L)
- 1 is yellow (Y) and numbered (N)

If you draw a numbered ball (N), the probability that this ball is white (W) is 0.60.

- True
- False

Question 5. What is the formula for the break-even point of a simple profit model?

- Fixed cost / variable cost per unit
- (Selling price per unit — variable cost per unit) / fixed cost
- Fixed cost / (selling price per unit —variable cost per unit)
- Fixed cost / (variable cost per unit —selling price per unit)
- Selling price per unit — (fixed cost / variable cost per unit)

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