3-16 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 Market $ Unfavorable Market $
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.
(a) What type of decision is Ken facing?
(b) What decision criterion should he use?
(c) What alternative is best?

3-42 In the past few years, the traffic problems in Lynn McKell’s hometown have gotten worse. Now, Broad Street is congested about half the time. The normal travel time to work for Lynn is only 15 minutes when Broad Street is used and there is no congestion. With congestion, however, it takes Lynn 40 minutes to get to work. If Lynn decides to take the expressway, it will take 30 minutes regardless of the traffic conditions. Lynn’s utility for travel time is: U(15 minutes) = 0.9, U(30 minutes) = 0.7, and U(40 minutes) = 0.2.

(a) Which route will minimize Lynn’s expected travel time?
(b) Which route will maximize Lynn’s utility?
(c) When it comes to travel time, is Lynn a risk seeker or a risk avoider?

5-14 Data collected on the yearly demand for 50-pound bags of fertilizer at Wallace Garden Supply are shown in the following table. Develop a three-year moving average to forecast sales. Then estimate demand again with a weighted moving average in which sales in the most recent year are given a weight of 2 and sales in the other two years are each given a weight of 1. Which method do you think is best?

5-26 Emergency calls to Winter Park, Florida’s 911 system, for the past 24 weeks are as follows:
Week Calls Forecast (α = .1) Deviation Forecast (α = .6) Deviation
1 50 50 0 50 0
2 35 50 = 50 + .1(50 – 50) 15 50 = 50 + .6(50 – 50) 15
3 25 48.5 = 50 + .1(35 – 50) 23.5 41 = 50 + .6(35 – 50) 16
4 40 46.15 = 48.5 + .1(25 – 48.5) 6.15 31.4 = 41 + .6(25 – 41) 8.6
5 45 45.54 = 46.15 + .1(40 – 46.15) .54 36.56 = 31.4 + .6(40 – 31.4) 8.44
……………………………………………………………………………………….

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