CBAD 292 Exam 3: Advanced Business
Concepts and Applications
A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of
10,000 and the lottery p(-25000) + (1 - p)(5000). If the utility of -25,000 is 0 and of 5000 is 1, then the
utility of -10,000 is - correct answer ✔✔.6
A decision maker whose utility function graphs as a straight line is - correct answer ✔✔risk neutral
A decision tree - correct answer ✔✔arranges decision alternatives and states of nature in their natural
chronological order.
A decision tree provides - correct answer ✔✔an objective way of determining the relative value of each
decision alternative.
A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or
Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent
upon the amount of rainfall during the growing season. The tables below show probabilities and prices
for wet, dry and normal growing seasons:
Probabilities
Wet Dry Normal
Vietnam .5 .2 .3
Taiwan .6 .3 .1
Thailand .4 .4 .2
Price/Pound ($)
Wet Dry Normal
Vietnam .95 1.10 1.00
Taiwan .85 1.20 .98
, Thailand .90 1.15 1.05
What country should the company select? - correct answer ✔✔Taiwan
A payoff - correct answer ✔✔exists for each pair of decision alternative and state of nature.
Decision tree probabilities refer to - correct answer ✔✔the probability of an uncertain event occurring
Decision tree probabilities refer to the probability of - correct answer ✔✔an uncertain event occurring.
After careful analysis, East West has determined the following cost breakdown for the four
manufacturers (in $1,000's) based on whether or not the trade bill passes: Country A
Bill Passes
260
Bill Fails
210
Country B
Bill Passes
320
Bill Fails
160
Country C
Bill Passes
240
Bill Fails
240
Country D
Bill Passes
275
Concepts and Applications
A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of
10,000 and the lottery p(-25000) + (1 - p)(5000). If the utility of -25,000 is 0 and of 5000 is 1, then the
utility of -10,000 is - correct answer ✔✔.6
A decision maker whose utility function graphs as a straight line is - correct answer ✔✔risk neutral
A decision tree - correct answer ✔✔arranges decision alternatives and states of nature in their natural
chronological order.
A decision tree provides - correct answer ✔✔an objective way of determining the relative value of each
decision alternative.
A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or
Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent
upon the amount of rainfall during the growing season. The tables below show probabilities and prices
for wet, dry and normal growing seasons:
Probabilities
Wet Dry Normal
Vietnam .5 .2 .3
Taiwan .6 .3 .1
Thailand .4 .4 .2
Price/Pound ($)
Wet Dry Normal
Vietnam .95 1.10 1.00
Taiwan .85 1.20 .98
, Thailand .90 1.15 1.05
What country should the company select? - correct answer ✔✔Taiwan
A payoff - correct answer ✔✔exists for each pair of decision alternative and state of nature.
Decision tree probabilities refer to - correct answer ✔✔the probability of an uncertain event occurring
Decision tree probabilities refer to the probability of - correct answer ✔✔an uncertain event occurring.
After careful analysis, East West has determined the following cost breakdown for the four
manufacturers (in $1,000's) based on whether or not the trade bill passes: Country A
Bill Passes
260
Bill Fails
210
Country B
Bill Passes
320
Bill Fails
160
Country C
Bill Passes
240
Bill Fails
240
Country D
Bill Passes
275
