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Decision Support System - PDF

   

Added on  2021-06-17

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Running Head: DECISION SUPPORT SYSTEMDecision Support SystemName of the StudentName of the UniversityAuthor Note

DECISION SUPPORT SYSTEM1Table of ContentsProblem 1...................................................................................................................................2Problem 2...................................................................................................................................4Problem 3...................................................................................................................................5Problem 4...................................................................................................................................5Part 2......................................................................................................................................5Part 2......................................................................................................................................6Problem 5...................................................................................................................................8Problem 6...................................................................................................................................9Task 1.....................................................................................................................................9Task 2...................................................................................................................................11Conclusion............................................................................................................................12

DECISION SUPPORT SYSTEM2Problem 1Two friends Gregor and Ilya have recently completed their studies and are interestedin setting up a business. They have adopted three different strategies to do that.Strategy 1: Rent a fairly expensive location to set up an office for their business and wheretheir potential customers are located. Strategy 2: To rent a comparatively cheaper place in the neighbouring suburb.Strategy 3: Not to set up a business at all.The estimates of profit and loss from the business in a favourable and unfavourablemarket are given in the following table: FavourableUnfavourableStrategy 1$20,000$16,000Strategy 2$15,000$6,000Strategy 3$0$0(a)Ilya is an optimist and likes to take risks. Thus, the strategy chosen by Ilyawill be Strategy 1, where the profitable amount is maximum.Ilya’s ApproachFavourableUnfavourableBest Profit / LossStrategy 1$20,000$16,000$20,000Strategy 2$15,000$6,000$15,000Strategy 3$0$0$0(b)On the other hand, Gregor is conservative and tries to minimize the risk. Thus,the strategy chosen by Gregor will be Strategy 3, where the chance of suffering a lossis minimum.Table 1.3: Approach by GregorFavourable UnfavourableLeast Profit / LossStrategy 1$20,000$16,000$16,000Strategy 2$15,000$6,000$6,000Strategy 3$0$0$0

DECISION SUPPORT SYSTEM3(c)A market is favourable with a probability of 55 percent. Thus, the expectedprofit has been found to be maximum for Strategy 2. Hence Strategy 2 must bechosen.Table 1.4: Expected ValueFavourable UnfavourableExpected ValueStrategy 1$11,000$7,200$3,800Strategy 2$8,250$2,700$5,550Strategy 3$0$0$0(d)The expected returns when the probability of the market being favourable isnot fixed at 0.55 percent and lies between 0 and 1 from both the strategies are plottedin the following figure:0.000.060.120.180.240.300.360.420.480.540.600.660.720.780.840.900.96$20,000$15,000$10,000$5,000$0$5,000$10,000$15,000$20,000$25,000Comparison of Expected ReturnsStrategy 1Strategy 2ProbabilitiesExpectedReturns(in$)(e)i)Strategy 1 will be chosen when the probability of market being favourable isgiven by 0.67 ≤ P ≤ 1ii)Strategy 2 will be chosen when the probability of market being favourable isgiven by 0.29 ≤ P ≤ 0.66iii)Strategy 3 will be chosen when the probability of market being favourable isgiven by 0 ≤ P ≤ 0.28

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