BOSTON UNIVERSITY METROPOLITAN COLLEGE DEPARTMENT OF ADMINISTRATIVE SCIENCES AD 616: Enterprise Risk Analytics Assignment 5 What to submit? Please submit (i) a word file explaining in detail your...

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This assignment need to write a algorithm to solve the real case questions, for the five questions from the case we provided.


BOSTON UNIVERSITY METROPOLITAN COLLEGE DEPARTMENT OF ADMINISTRATIVE SCIENCES AD 616: Enterprise Risk Analytics Assignment 5 What to submit? Please submit (i) a word file explaining in detail your answers to each question (you can use screenshots of the R to explain your answers) AND (ii) R file with a picture of the decision tree. For each question, make sure you develop the model and present the simulation results – R file should be self-explanatory. The assessment of your work will include both the accuracy and the clarity of your word file and the R File. 1. Video Tech is considering marketing one of two new video games for the coming Holiday season1: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows: Demand Battle Pacific High Medium Low Profit $1000 $700 $300 Probability 0.2 0.5 0.3 Video Tech is optimistic about its Space Pirates game. However, the concern is that profitability will be affected by a competitor’s introduction of a video game viewed as similar to Space Pirates. Estimated profits (in thousands of dollars) with and without competition are as follows: Space Pirates Demand With Competition High Medium Low Profit $800 $400 $200 Probability 0.3 0.4 0.3 Space Pirates Demand Without Competition High Medium Low Profit $1600 $800 $400 Probability 0.5 0.3 0.2 For planning purposes, Video Tech believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this probability of competition, the director of planning recommends marketing the Battle Pacific video game. Using expected value, what is your recommended decision and what is the expected profit? 1This problem is adapted from Camm et al., Essentials of Business Analytics, Chapter 12, pp. 586 – 587, Exercise 8, 2015, Cengage Learning. 2. Reconsider the problem in Question 1. Suppose that the profits (in thousands of dollars) are uncertain. For Battle Pacific: · When demand is high, the profit is normally distributed with mean 1000 and standard deviation 100. · When demand is medium, the profit is normally distributed with mean 700 and standard deviation 70. · When demand is low, the profit is normally distributed with mean 300 and standard deviation 30. For Space Pirates with competition: · When demand is high, the profit is normally distributed with mean 800 and standard deviation 80. · When demand is medium, the profit is normally distributed with mean 400 and standard deviation 40. · When demand is low, the profit is normally distributed with mean 200 and standard deviation 20. For Space Pirates without competition: · When demand is high, the profit is normally distributed with mean 1600 and standard deviation 160. · When demand is medium, the profit is normally distributed with mean 800 and standard deviation 80. · When demand is low, the profit is normally distributed with mean 400 and standard deviation 40. Incorporate this information to your decision tree. What is the probability that the expected profit will be less than $724.000? 3. A company must decide whether to manufacture a component part in its plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature Decision Alternative Low Demand, s1 Medium Demand,s2 High Demand,s3 Manufacture,d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. Use a decision tree to recommend a decision. b. A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(F|s1) = 0.10 P(U|s1) =0.90 P(F|s2) = 0.40 P(U|s2) = 0.60 P(F|s3) = 0.60 P(U|s3) = 0.40 What is the probability that the market research report will be unfavorable? c. What is the company’s optimal decision strategy? d. What is the expected value of the market research information? Page | 3 Please list your group members below, and rate their contribution to the team on the following scale from 1-5: 1: did not contribute in any meaningful way 2: participated minimally 3: contribute meaningfully, but not as much as yourself and other group members 4: contributed meaningfully and equitably 5: exceeded your expectations Name Rating
Answered 24 days AfterApr 08, 2021

Answer To: BOSTON UNIVERSITY METROPOLITAN COLLEGE DEPARTMENT OF ADMINISTRATIVE SCIENCES AD 616: Enterprise Risk...

Swapnil answered on Apr 20 2021
139 Votes
79964/Solution.docx
1)
Recommended decision using expected value:
It is given that the probabilities are 0.2, 0.5, and 0.3, and the profits are $1,000, $700, and $300.
Now, calculate the expected value for space pirates with competition as follows:
EV (Battle Specific) = 0.2(1000) + 05(700) +0.3(300)
= 200 +3
50 + 90
= 640
Expected value for space pirates with competition:
It is given that the probabilities are 0.3, 0.4, and 0.3, and the profits are $800, $400, and $200.
Now, calculate the expected value for space pirates with competition as follows:
EV (Space pirates with competition) = 0.3(800) + 0.4(400) + 0.3(200)
=240 + 160 + 60
=460
Expected value for space pirates without competition:
It is given that the probabilities are 0.5, 0.3, and 0.2, and the profits are $1,600, $800, and $400.
Now, calculate the expected value for space pirates without competition as follows:
EV (Space pirates without competition) = 0.5(1600) + 0.3(800) + 0.2(400)
= 800 + 240 + 80
= 1120
Expected value for space pirates:
It is given that the probability of space pirates with competition is 0.6, and without competition is 0.4. The calculated expected value for space pirates with competition is 460, and without competition is 1,120.
Now, calculate the expected value for space pirates as follows:
EV (Space Pirates) = 0.6(460) + 0.4(1120)
= 276 + 448
=724
Hence, space pirates should be recommended with the expected value of $724,000, which is better than the expected value of battle pacific.
2)
Risk profile for space pirates:
The risk profile for the optimal decision is space pirates.
Now, construct a risk profile for the optimal decision as follows:
        Profits (in thousands of dollars)
        Probabilities
        1,600
        0.20(0.4 * 0.5)
        800
        0.30 [(0.6 * 0.3) + (0.4 * 0.3)]
        400
        0.32 [(0.6 * 0.4) + (0.4 * 0.2)]
        200
        0.18 (0.6 * 0.3)
Graphical sensitivity analysis for determining the probability of competition for space pirates:
Let p be the probability of competition.
Now, calculate the value of p by solving the equation for the expected value of space pirates with the competition and without the competition as follows:
1,120 – p (1,120 – 460) = 640
1,1,20 – 660p = 640
660p = 1,120 – 640
P = 0.73
The value of p is higher than 0.74 before making a change in the battle pacific game.
3)
A) A decision tree is basically gives the graphical representation of the decision problem that can give the sequential nature for the decision making process.
The expected value for the decision is the sum of weighted payoffs for the decision. The expected value (EV) of decision alternative di is defined as follows:
        N
        It gives us the number of nature states.
        P(Sj)
        It gives us the probability of the Sj nature
        Vij
        The payoff for the decision di and the state of Sj nature.
Calculating the expected value of d1
EV(d1) = (0.35) (-20) + (0.35) (40) +(0.30) (100)
= -7 + 14 + 30
= 37
Calculating the expected value of d2
EV(d2) = (0.35) (10) + (0.35) (45) +(0.30) (70)
= 3.5 + 15.75 + 21
= 40.25
Used the expected value approach, the recommended decision is d2 and we can expect...
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