Part 1 of 3 – Part 1 
Kenneth Brown is the principal owner
of Brown Oil, Inc. After quitting his university teaching job, Ken has been
able to increase his annual salary by a factor of over 100. At the present
time, Ken is forced to consider purchasing some more equipment for Brown Oil
because of competition. His alternatives are shown in the following table:
Equipment 
Favorable with 
Unfavorable with 
Sub 100 
300,000 
–200,000 
Oiler J 
250,000 
–100,000 
Texan 
75,000 
–18,000 
For example, if Ken purchases a Sub
100 and if there is a favorable market, he will realize a profit of $300,000.
On the other hand, if the market is unfavorable, Ken will suffer a loss of
$200,000. But Ken has always been a very optimistic decision maker.
Although Ken Brown is the principal
owner of Brown Oil, his brother Bob is credited with making the company a
financial success. Bob is vice president of finance. Bob attributes his success
to his pessimistic attitude about business and the oil industry.
Question 1 of 9 If Bob would want to base his A. B. C. D. 

Question 2 of 9 Based on the above information, 

Question 3 of 9 Based on the above information,


Question 4 of 9 If Ken would want to maximize the A. B. C. 

Question 5 of 9 If Ken believes that Sub 100 Hint: You may want to use the WhatIfAnalysis Goal Seek Tool in Excel 
Part 2 of 3 – Part 2 
Megley Cheese Company is a small manufacturer of several
different cheese products. One of the products is a cheese spread that is sold
to retail outlets. Jason Megley must decide how many cases of cheese spread to
manufacture each month. The probability that the demand will be six cases is
0.1, for 7 cases is 0.3, for 8 cases is 0.5, and for 9 cases is 0.1. The cost
of every case is $45, and the price that Jason gets for each case is $95.
Unfortunately, any cases not sold by the end of the month are of no value, due
to spoilage.
Hint: You need to fill in the following table and be careful with the waste
whenever production exceeds consumption or the forgone revenue if
supply/production falls short of demand.

Question 6 of 9 10.0 Points The Expected Monetary Value (EMV)


Question 7 of 9 The Expected Monetary Value (EMV)


Question 8 of 9 John should manufacture _________ A. B. C. D. 
Part 3 of 3 – Part 3 
A group of medical professionals is
considering the construction of a private clinic. If the medical demand is high
(i.e., there is a favorable market for the clinic), the physicians could
realize a net profit of $100,000. If the market is not favorable, they could
lose $40,000. Of course, they don’t have to proceed at all, in which case there
is no cost. In the absence of any market data, the best the physicians can
guess is that there is a 50–50 chance the clinic will be successful.
Question 9 of 9 Construct a decision tree by The decision choice at Decision 1 is and that at Decision 2 is The probability for Prob1 is and that for Prob2 is . Payoff 1 is and Payoff 2 is . EMV 1 is and EMV 2 is . 