Ms 6000 Final

Topics: Costs, Decision making, Cosmo Kramer Pages: 6 (1381 words) Published: May 6, 2012
Question 1

When we are attempting to make a business decision, the decision criteria should always be to minimize cost. Answer
Question 2

EVSI can never exceed EVPI
Question 3

You are currently paying \$12 per hour for labor, and labor costs are included in the calculation of the objective function coefficients of a maximization problem. The shadow price for labor printed on the sensitivity analysis report is \$8. It would be economically beneficial to you if you could secure extra labor for \$15 per hour. Answer

Question 4

If project 1 is performed then project 2 will not be performed. This can be modeled by the constraint X1 – X2 ≤ 1, where X1 and X2 are binary variables.
Question 5

Monte Carlo simulations are deterministic.
Question 6

In constructing a utility curve,
the certainty of a certain amount is compared with the willingness to gamble that amount on a larger amount. Question 7

Banner Tools produces two styles of steel hammers with wooden handles. The first sells for \$6 and consists of .5 pounds of steel; the second sells for \$15 and consists of 1 pound of steel. Since steel costs the firm \$4 per pound and the handle, labor, and packaging costs amount to \$1 for either hammer, the profits coefficients are \$6 - .5(\$4) - \$1 = \$3 for the smaller hammer and \$15 – 1(\$4) - \$1 = \$10 for the larger hammer. Thus the objective function for this model is MAX 3X1 + 10X2. Given that the shadow price for steel is \$2, which of the following statements is correct? Answer

Banner should buy at least as much as the “ALLOWABLE INCREASE”, but only if it can be purchase for less than \$6 per pound. Question 8

Nike may build a factory at Millville (Y1) or it may not. It may also build a regional warehouse at the same site (W1). But Nike will not build a warehouse without also building a factory. So, its choices are: (1) neither factory nor warehouse; (2) factory only; or (3) factory and warehouse. The appropriate linear constraint to express this is: Answer

Y1 – W1 ≥ 0
Question 9

In sensitivity analysis, a zero shadow price for a resource ordinarily means that Answer
the resource has not been used up
Question 10

Which of the following would not generally be listed as a reason for the popularity of simulation as a managerial tool? Answer
Ability to provide optimal solutions
Question 11

The campus bookstore wishes to determine how many units of a discontinued computer it should purchase for an upcoming sale. The computers cost \$800 each and the bookstore believes it can sell them for \$1100 each. At that price the bookstore estimates that the demand will be between one and four units. Any computers unsold at the end of the sale will be marked down in price by 50% and will quickly sell out. If the bookstore does not have enough computers in stock to satisfy all the demand, it estimates that it will incur a goodwill loss of \$100 for each unsatisfied customer. Determine the optimal decision. What is the expected payoff for the optimal? Answer

462.5
Question 12

A company faces possible industrial action by workers during the final rounds of wage negotiation with a workers’ union. The union is currently demanding pay increases and benefits worth \$2m: substantially more than the industry standard. Ping, the company’s...