BUSOBA 2321 Midterm LATEST VERIFIED VERSION

BUSOBA 2321 Midterm LATEST VERIFIED VERSION
characteristics of a good decision - (ANSWER)-based on logic
-considers all options and info available
-sometimes gives unfavorable results

5 steps of the decision making process - (ANSWER)1) define problem
2) list all alternatives (options, rows)
3) identify outcomes (states of nature, columns) for each alternative
4) identify payoff for each combo of alternatives and outcome
5) pick a technique

profit = - (ANSWER)revenue - cost

revenue = - (ANSWER)Price x Quantity

costs = - (ANSWER)fixed costs + (quantity x variable costs)

Profit line equation - (ANSWER)(P-VC) x Q - FC

break even point graph - (ANSWER)FC= intercept
(P-VC)= slope
x intercept = break even point

indifference point - (ANSWER)when total costs are equal to profit

indifference point equation (with price) - (ANSWER)(Pa-VCa)Q-FCa=(Pb-VCb)Q-FCb

indifference point equation (with costs only) - (ANSWER)FCa+VCa*Q=FCb+VCb*Q

Steps to calculating indifference point - (ANSWER)1) Determine Equations for each
2) Set each equation equal to each other and solve for Q
3) make indifference point table, set test points, plug back into equation
4) determine which points yield the highest profit

MAXIMAX - (ANSWER)optimistic, choosing biggest return option (rows), then max of these
options

MAXMIN - (ANSWER)pessimistic, choosing the smallest return option (rows), then take the
max of these options

MINIMAX Regret - (ANSWER)1) find best outcome for each state of nature (column)
2) determine the regret for each combo
- what you could have had - what you got aka
best payoff - actual payoff
3) find the max regret of each option (row)

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