1. A manufacturing company must decide whether to sell a component part in
Canada or sell it in Mexico. If the component part is sold in Mexico, the company
realizes profits of $12.
If the component part is sold in Canada, the profit depends on the level of demand in
Canada. There is a 35% chance that the demand level is low. If the component part
is sold in Mexico, the demand level in Canada does not influence profit in Mexico. The
following is the payoff table.
Demand Level in High Low
Sell in Canada 30 -12
Sell in Mexico 12 12
A market study of the potential demand level for the product is expected to report
either “encourage” or “discourage” result. The cost of conducting this market study
is $20. There is a 28% chance that the demand for the component part in Canada
will be low given a “encourage result”. However, if the market study report is an
“discourage result”, then there is a 62% chance that the demand for the product in
Canada will be low. The likelihood that the company receives an “unfavorable result”
(1) Draw the decision tree and show all related probabilities.
(2) Calculate the EVSI
(3) Calculate the EVPI
(4) Should this manufacturer conduct this market study? Why? 2. An economist obtains the following multiple linear regression result.
SUMMARY OUTPUT ANOVA
df SS MS F Significance F
Regression Statistics Regression 2 19.3852 9.6926 91.149 0
Multiple R 0.8079 Residual 97 10.3148 0.1063
R Square 0.6527 Total 99 29.7
Adjusted R Square 0.6456
Standard Error 0.326 Coefficients Standard t Stat P-value
Observations 100 Intercept 17.32 0.2 86.51 0
X Variable 1 -0.0671 0.005 -13.42 0
X Variable 2 -0.0434 0.039 -1.11 0.2694
(a) Write out the resulting sample estimate of the regression model.
(b) Assess the model in terms of validity of the model (using 5% significance
(c) Test whether the Variable 2 has a significant liner relationship with the
dependent variable, using a 5% significance level.
(d) Using the point prediction, calculate the value of the dependent variable
when X-variable 1 is 10 and X-variable 2 is 0.
3. A store has decided they wanted to start analyzing their sales data for the past
10 months. Given the following sales data:
5 125 6 120
a) Use exponential smoothing to forecast sales for the 11th month and
provide the MAD. Use a sm