Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced.
What would be the total payoff if script 1 were a success, but its sequel were not?

Accepted Answer

A)  $15,000,000
B)  $10,000,000
C)  $9,000,000
D)  $5,000,000
E)  $−1,000,000F) None of the above
G) A) and D)

Question 3

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years.
What is the expected value for the optimum decision alternative?

Accepted Answer

A)  $100,000
B)  $60,000
C)  $50,000
D)  $40,000
E)  $20,000F) A) and D)
G) B) and C)

Question 4

The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Accepted Answer

A) True 
 B)False

Question 5

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to break even?

Accepted Answer

A)  5,000
B)  3,000
C)  2,000
D)  1,000
E)  0F) B) and E)
G) D) and E)

Question 6

The maximin approach involves choosing the alternative with the highest payoff.

Accepted Answer

A) True 
 B)False

Question 7

Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would tend to reduce effective capacity?

Accepted Answer

A)  suppliers that provide more reliable delivery performance
B)  reduced changeover times
C)  employees that are fully trained
D)  improved production quality
E)  greater variety in the product lineF) A) and C)
G) B) and E)

Question 9

Unbalanced systems are evidenced by:

Accepted Answer

A)  top-heavy operations.
B)  labor unrest.
C)  bottleneck operations.
D)  increasing capacities.
E)  assembly lines.F) A) and B)
G) D) and E)

Question 10

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:

If she uses the maximin criterion, what size outlet will she decide to lease?

Accepted Answer

A)  small
B)  medium
C)  large
D)  either small or medium
E)  either medium or largeF) C) and E)
G) D) and E)

Question 11

If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs.

Accepted Answer

A) True 
 B)False

Question 12

Consider the following decision scenario:

*PV for profits ($000) 
The maximax strategy would be:

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.
E)  E.F) C) and D)
G) B) and C)

Question 13

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced.
What is the expected value of selecting script 2?

Accepted Answer

A)  $15,000,000
B)  $9,060,000
C)  $8,400,000
D)  $7,200,000
E)  $6,000,000F) None of the above
G) A) and E)

Question 14

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:

If he uses the maximin criterion, which kind of dwellings will he decide to build?

Accepted Answer

A)  single family
B)  apartments
C)  condominiums
D)  either single family or apartments
E)  either apartments or condosF) B) and E)
G) D) and E)

Question 15

Which of the following would not be a potential upside in a decision to outsource?

Accepted Answer

A)  increased total production capacity
B)  potential to lower fixed costs
C)  supplier may have greater expertise to do the outsourced work
D)  disclosure of proprietary information to supplier
E)  supplier cost may be lowerF) A) and C)
G) B) and E)

Question 16

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to make a profit of $30,000?

Accepted Answer

A)  3,200
B)  1,500
C)  2,000
D)  1,000
E)  500F) C) and D)
G) None of the above

Question 17

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:

If she feels there is a 30 percent chance that demand will be high, what is her expected payoff under certainty?

Accepted Answer

A)  $1,600
B)  $1,100
C)  $1,000
D)  $900
E)  $500F) B) and E)
G) A) and E)

Question 18

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent chance of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years.
What is the expected value for the decision alternative to select the heart lab?

Accepted Answer

A)  $100,000
B)  $60,000
C)  $50,000
D)  $40,000
E)  $20,000F) C) and E)
G) D) and E)

Question 19

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington, D.C. They estimate it will cost $50 per prisoner to process the paperwork at this new location. The county is paid a $75 commission for each new prisoner they process. If their holding area at this new location has design and effective capacities of 10,000 and 7,500 prisoners processed annually, respectively, and they plan to be 80 percent efficient in their use of this space, how many prisoners does the county plan to process per year?

Accepted Answer

A)  5,000
B)  8,000
C)  2,000
D)  4,000
E)  6,000F) A) and B)
G) A) and E)

Question 20

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:

If he uses the Laplace criterion, which alternative will he decide to select?

Accepted Answer

A)  do nothing
B)  expand
C)  build new
D)  either do nothing or expand
E)  either expand or build newF) A) and B)
G) B) and E)

Exam 5: Strategic Capacity Planning for Products and Services

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

Correct Answer
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If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs.

Correct Answer
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Correct Answer
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Unbalanced systems are evidenced by:

Correct Answer
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The maximin approach involves choosing the alternative with the highest payoff.

Correct Answer
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Correct Answer
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Which of the following would not be a potential upside in a decision to outsource?

Correct Answer
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Correct Answer
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Correct Answer
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The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Correct Answer
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Correct Answer
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Correct Answer
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Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.

Correct Answer
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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: If she uses the maximin criterion, what size outlet will she decide to lease?

Correct Answer
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Correct Answer
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Which of the following would tend to reduce effective capacity?

Correct Answer
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Consider the following decision scenario: *PV for profits ($000) The maximax strategy would be:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Exam 5: Strategic Capacity Planning for Products and Services

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

Correct AnswerverifiedShow Answer

If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Unbalanced systems are evidenced by:

Correct AnswerverifiedShow Answer

The maximin approach involves choosing the alternative with the highest payoff.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would not be a potential upside in a decision to outsource?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.

Correct AnswerverifiedShow Answer

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: If she uses the maximin criterion, what size outlet will she decide to lease?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would tend to reduce effective capacity?

Correct AnswerverifiedShow Answer

Consider the following decision scenario: *PV for profits ($000) The maximax strategy would be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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