Test Bank for Operations Management: Sustainability and Supply Chain Management, 13th Edition

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Operations Management, 13e (Heizer/Render/Munson)
Module A Decision-Making Tools
Section 1 The Decision Process in Operations
1) Analytic decision making is based on logic and considers all available data and possible
alternatives.
Answer: TRUE
Diff: 1
2) The first step in the analytic decision process is to clearly define the problem and the factors
that influence it.
Answer: TRUE
Diff: 1
3) The last step in the analytic decision process is to select the best alternative.
Answer: FALSE
Diff: 1
4) The most critical step in the analytic decision process is to minimize the total cost.
Answer: FALSE
Diff: 1
5) Which of the following is NOT considered a step in the decision-making process?
A) Clearly define the problem and the factors that influence it.
B) Select the best alternative.
C) Develop specific and measurable objectives.
D) Evaluate each alternative solution based on its merits and drawbacks.
E) Minimize costs whenever possible.
Answer: E
Diff: 2
6) The first step, and a key element, in the decision-making process is to:
A) consult a specialist.
B) clearly define the problem.
C) develop objectives.
D) monitor the results.
E) select the best alternative.
Answer: B
Diff: 1

2
7) The last step of the decision-making process is to:
A) develop a model.
B) evaluate each alternative.
C) select the best alternative.
D) implement the decision.
E) check the decision with senior management.
Answer: D
Diff: 2
8) Identify, in order, the six steps of analytical decision making.
Answer: 1. Clearly define the problem and factors that influence it.
2. Develop specific and measurable objectives.
3. Develop a model—that is, a relationship between objectives and variables (which are
measurable quantities).
4. Evaluate each alternative solution based on its merits and drawbacks.
5. Select the best alternative.
6. Implement the decision and set a timetable for completion.
Diff: 3
Section 2 Fundamentals of Decision Making
1) A state of nature is an occurrence or a situation over which the decision maker has little or no
control.
Answer: TRUE
Diff: 1
Objective: LO A.1 Create a simple decision tree
2) In a decision tree, a round symbol represents a state of nature node.
Answer: TRUE
Diff: 2
Objective: LO A.1 Create a simple decision tree
3) A square node on a decision tree infers that:
A) the node splits into various states of nature, of which only one will occur.
B) there are several alternatives available.
C) the manager must choose an alternative.
D) Both B and C
E) A, B, and C
Answer: D
Diff: 2
Objective: LO A.1 Create a simple decision tree
AACSB: Reflective thinking

3
4) The following decision tree has how many state-of-nature nodes?
A) 0
B) 1
C) 2
D) 3
E) 4
Answer: D
Diff: 2
Objective: LO A.1 Create a simple decision tree
5) In terms of decision theory, an occurrence or situation over which the decision maker has no
control is called a(n):
A) decision under uncertainty.
B) decision tree.
C) state of nature.
D) alternative.
E) EMV.
Answer: C
Diff: 2
Objective: LO A.1 Create a simple decision tree
6) A(n) ________ is an occurrence or situation over which the decision maker has little or no
control.
Answer: state of nature
Diff: 1
Objective: LO A.1 Create a simple decision tree
7) The square symbol used in drawing a decision tree represents a(n) ________ node.
Answer: decision
Diff: 1
Objective: LO A.1 Create a simple decision tree

4
8) In the context of decision making, define a state of nature.
Answer: A state of nature is an occurrence or situation over which the decision maker has little
or no control.
Diff: 2
Objective: LO A.1 Create a simple decision tree
9) In the context of decision-making, define an alternative.
Answer: An alternative is a course of action or strategy that may be chosen by a decision maker.
Diff: 2
Objective: LO A.1 Create a simple decision tree
10) Explain the symbols used in decision tree analysis.
Answer: A decision node from which one or several alternatives may be selected is represented
by a square; a state of nature node out of which states of nature will occur is represented by a
circle.
Diff: 2
Objective: LO A.1 Create a simple decision tree
Section 3 Decision Tables
1) An example of a conditional value would be the payoff from selecting a particular alternative
when a particular state of nature occurs.
Answer: TRUE
Diff: 2
Objective: LO A.2 Build a decision table
2) What is a tabular presentation that shows the outcome for each decision alternative under the
various possible states of nature called?
A) payoff tree
B) payback period matrix
C) decision table
D) feasible region
E) decision tree
Answer: C
Diff: 1
Objective: LO A.2 Build a decision table
3) What is the outcome of an alternative/state of nature combination called?
A) price
B) conditional value
C) expected value
D) conditional probability
E) conditional expectation
Answer: B
Diff: 2
Objective: LO A.2 Build a decision table

5
4) Doing nothing would yield how much profit if favorable market conditions prevail according
to the following profit decision table?
Alternative Favorable market Unfavorable Market
Do Nothing $20,000 -$10,000
A) $5,000
B) $20,000
C) -$10,000
D) $0
E) $10,000
Answer: B
Diff: 1
Objective: LO A.2 Build a decision table
5) A retailer is deciding how many units of a certain product to stock. The historical probability
distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The
product costs $11 per unit and sells for $25 per unit. What is the conditional value for the
decision alternative "Stock 3" and state of nature "Sell 1"?
A) 1.4 units
B) $1 profit
C) $25 profit
D) $-8 profit
E) $23.80 profit
Answer: D
Diff: 2
Objective: LO A.2 Build a decision table
AACSB: Analytical thinking
6) A retailer is deciding how many units of a certain product to stock. The historical probability
distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The
product costs $8 per unit and sells for $33 per unit. What is the largest conditional value (profit)
in the entire payoff table for this scenario?
A) $-24 profit
B) $42 profit
C) $9 profit
D) $51 profit
E) $75 profit
Answer: E
Diff: 2
Objective: LO A.2 Build a decision table
AACSB: Analytical thinking

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7) A retailer is deciding how many units of a certain product to stock. The historical probability
distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The
product costs $10 per unit and sells for $33 per unit. What is the smallest conditional value
(profit) in the entire payoff table for this scenario?
A) $-30 profit
B) $3 profit
C) $36 profit
D) $66 profit
E) $75 profit
Answer: A
Diff: 2
Objective: LO A.2 Build a decision table
AACSB: Analytical thinking
8) A(n) ________ is a tabular means of analyzing decision alternatives and states of nature.
Answer: decision table
Diff: 1
Objective: LO A.2 Build a decision table
9) What are decision tables?
Answer: Decision tables are a tabular means of analyzing decision alternatives and states of
nature.
Diff: 2
Objective: LO A.2 Build a decision table
10) What is a conditional value?
Answer: It is an outcome of a particular alternative/state of nature combination.
Diff: 2
Objective: LO A.2 Build a decision table
Section 4 Types of Decision-Making Environments
1) If a decision maker can assign probabilities of occurrences to the states of nature, then the
decision-making environment is Decision Making under Uncertainty.
Answer: FALSE
Diff: 2
Objective: LO A.3 Explain when to use each of the three types of decision-making
environments
2) The maximax criterion of decision making requires that all decision alternatives have an equal
probability of occurrence.
Answer: FALSE
Diff: 2
Objective: LO A.3 Explain when to use each of the three types of decision-making
environments

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7
3) The maximin criterion is optimistic, while the maximax criterion is pessimistic.
Answer: FALSE
Diff: 1
4) If a decision maker knows for sure which state of nature will occur, he/she is making a
decision under certainty.
Answer: TRUE
Diff: 2
Objective: LO A.3 Explain when to use each of the three types of decision-making
environments
5) The expected value with perfect information assumes that all states of nature are equally
likely.
Answer: FALSE
Diff: 1
Objective: LO A.3 Explain when to use each of the three types of decision-making
environments
6) An example of expected monetary value would be the payoff from selecting a particular
alternative when a particular state of nature occurs.
Answer: FALSE
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
7) The expected monetary value of a decision alternative is the sum of all possible payoffs from
the alternative, each weighted by the probability of that payoff occurring.
Answer: TRUE
Diff: 1
Objective: LO A.4 Calculate an expected monetary value (EMV)
8) If a decision maker has to make a particular decision only once, expected monetary value is a
good indication of the payoff associated with the decision.
Answer: FALSE
Diff: 3
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Reflective thinking
9) The expected value of perfect information is the same as the expected value with perfect
information.
Answer: FALSE
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)

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10) What decision criterion would be used by a pessimistic decision maker solving a problem
under conditions of uncertainty?
A) expected monetary value
B) equally likely
C) maximax
D) maximin
E) minimin
Answer: D
Diff: 2
11) A decision maker who uses the maximax criterion when solving a problem under conditions
of uncertainty is:
A) an optimist.
B) a pessimist.
C) an economist.
D) an optometrist.
E) making a serious mistake; maximax is not appropriate for conditions of uncertainty.
Answer: A
Diff: 2
12) Expected monetary value is most appropriate for problem solving that takes place:
A) when conditions are average.
B) when all states of nature are equally likely.
C) when all alternatives are equally likely.
D) under conditions of uncertainty.
E) under conditions of risk.
Answer: E
Diff: 2
Objective: LO A.3 Explain when to use each of the three types of decision-making
environments
13) There are three equally likely states of nature (High, Medium, and Low demand). If the large
factory will post profits of $60,000, $25,000, and -$10,000 under these states of nature,
respectively, what is the EMV of the factory?
A) $50,000
B) $25,000
C) $28,333.33
D) $21,666.67
E) $65,000
Answer: B
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking

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9
14) A plant manager wants to know how much she should be willing to pay for perfect market
research. Currently there are two states of nature facing her decision to expand or do nothing.
Under favorable market conditions the manager would make $100,000 for the large plant and
$5,000 for the small plant. Under unfavorable market conditions the large plant would lose
$80,000 and the small plant would make $0. If the two states of nature are equally likely, how
much should she pay for perfect information?
A) $0
B) $25,000
C) $40,000
D) $100,000
E) $145,000
Answer: C
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
AACSB: Analytical thinking
15) The expected value with perfect information:
A) equals EVPI - Maximum EMV.
B) requires that each decision alternative have a known probability of occurrence.
C) is an input into the calculation of the expected value of perfect information.
D) is the average of the maximax and the maximin.
E) none of these
Answer: C
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
16) What is the difference between the expected payoff under perfect information and the
maximum expected payoff under risk?
A) expected monetary value
B) economic order quantity
C) expected value of perfect information
D) PERT
E) expected monetary payoff
Answer: C
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)

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10
17) The likelihood that a decision maker will ever receive a payoff precisely equal to the EMV
when making any one decision is:
A) low (near 0%).
B) high (near 100%).
C) dependent upon the number of alternatives.
D) dependent upon the number of states of nature.
E) none of these
Answer: A
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Reflective thinking
18) The expected value of perfect information (EVPI) is the:
A) payoff for a decision made under perfect information.
B) payoff under minimum risk.
C) average expected payoff.
D) difference between the payoff under perfect information and the payoff under risk.
E) greater of EVwPI and Maximum EMV.
Answer: D
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
19) A decision maker using the maximax criterion on the problem below would choose
Alternative ________ because the maximum of the row maximums is ________.
States of Nature
1 2 3
Alternative A 50 55 60
Alternative B 30 50 80
Alternative C 70 80 70
Alternative D -100 -10 140
A) A; 60
B) B; 80
C) C; 70
D) D; -100
E) D; 140
Answer: E
Diff: 2
AACSB: Analytical thinking

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11
20) A decision maker using the maximin criterion on the problem below would choose
Alternative ________ because the maximum of the row minimums is ________.
States of Nature
1 2 3
Alternative A 50 55 60
Alternative B 80 90 80
Alternative C 70 80 170
Alternative D -100 -10 140
A) A; 55
B) B; 80
C) C; 70
D) D; 140
E) D; 10
Answer: B
Diff: 2
AACSB: Analytical thinking
21) For the following decision table, the highest value for the equally likely criterion is
________; this occurs with alternative ________.
States of Nature
Alternatives S1 S2
Option 1 $10,000 $30,000
Option 2 $5,000 $55,000
Option 3 -$4,000 $60,000
A) $20,000; Option 1
B) $30,000; Option 2
C) $28,000; Option 3
D) $32,000; Option 3
E) $60,000; Option 2
Answer: B
Diff: 2
AACSB: Analytical thinking

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12
22) What is the EMV for Option 1 in the following decision table?
States of Nature
Alternatives S1 S2
p .7 .3
Option 1 15,000 20,000
Option 2 10,000 30,000
A) 15,000
B) 16,500
C) 17,500
D) 18,500
E) 20,000
Answer: B
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking
23) The expected value with perfect information is:
A) the maximum EMV for a set of alternatives.
B) the same as the expected value of perfect information.
C) the difference between the payoff under perfect information and the payoff under risk.
D) the expected return obtained when the decision maker knows which state of nature is going to
occur before the decision is made.
E) obtained using conditional probabilities.
Answer: D
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
24) What is the EMV for Option 2 in the following decision table?
States of Nature
Alternatives S1 S2
p .3 .7
Option 1 15,000 20,000
Option 2 10,000 30,000
A) 10,000
B) 16,000
C) 20,000
D) 24,000
E) 30,000
Answer: D
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking

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13
25) What is the EMV for Option 1 in the following decision table?
States of Nature
Alternatives S1 S2
p .6 .4
Option 1 10,000 30,000
Option 2 5,000 45,000
Option 3 -4,000 60,000
A) 10,000
B) 18,000
C) 20,000
D) 22,000
E) 30,000
Answer: B
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking
26) What is the EMV for Option 3 in the following decision table?
States of Nature
Alternatives S1 S2
p .4 .6
Option 1 10,000 30,000
Option 2 5,000 45,000
Option 3 -4,000 60,000
A) 5,000
B) 21,000
C) 25,000
D) 29,000
E) 34,400
Answer: E
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking

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14
27) What is the expected value with perfect information of the following decision table?
States of Nature
Alternatives S1 S2
p .6 .4
Option 1 10,000 30,000
Option 2 5,000 45,000
Option 3 -4,000 60,000
A) 5,000
B) 30,000
C) 40,000
D) 60,000
E) 8,400
Answer: B
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
AACSB: Analytical thinking
28) What is the EMV for Option 1 in the following decision table?
States of Nature
Alternatives S1 S2
p .2 .8
Option 1 200 300
Option 2 50 350
A) 220
B) 240
C) 250
D) 280
E) 300
Answer: D
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking

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15
29) What is the EMV for Option 2 in the following decision table?
States of Nature
Alternatives S1 S2
p .6 .4
Option 1 200 300
Option 2 50 350
A) 50
B) 100
C) 170
D) 200
E) 350
Answer: C
Diff: 2
Objective: LO A.4 Calculate an expected monetary value (EMV)
AACSB: Analytical thinking
30) What is the expected value with perfect information in the following decision table?
States of Nature
Alternatives S1 S2
p .6 .4
Option 1 200 300
Option 2 50 550
A) 90
B) 250
C) 260
D) 300
E) 340
Answer: E
Diff: 2
Objective: LO A.5 Compute the expected value of perfect information (EVPI)
AACSB: Analytical thinking

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