Business Intelligence, 4e Sharda/Delen/Turban) Chapter6 Prescriptive Analytics: Optimization and simulation 1)In the School District of Philadelphia case, Excel and an add-in was used to evaluate different vendor options Answer: TRUE Diff: 2 Page Ref: 321 2) Modeling is a key element for prescriptive analytics Answer TRUE Diff: 1 Page Ref: 322 3) Business analysis is the monitoring, scanning, and interpretation of collected environmental information Answer: FALSE Diff: 2 Page Ref: 324 4)Online commerce and communication has created an immense need for forecasting and an abundance of available information for performing it Answer: TRUE Diff: 2 Page Ref: 324 5)All quantitative models are typically made up of six basic components Answer: FALSI Diff: 2 Page Ref: 328 6) Result variables are considered independent variables Answer: FALsE Diff: 2 Page Ref: 328 7) In decision making under uncertainty, it is assumed that complete knowledge is available Answer: FALSE Diff: 2 Page Ref: 330 8)a decision made under risk is also known as a probabilistic or stochastic decision-making situation Answer: TRUE Diff: 2 Page Ref: 331 9)Spreadsheets include all possible tools needed to deploy a custom Dss Answer: FALSE Diff: 2 Page Ref: 332 O) Spreadsheets are clearly the most popular developer modeling tool Answer: FALsE Diff: 2 Page Ref: 333 Copyright C 2018 Pearson Education, Inc
1 Copyright © 2018 Pearson Education, Inc. Business Intelligence, 4e (Sharda/Delen/Turban) Chapter 6 Prescriptive Analytics: Optimization and Simulation 1) In the School District of Philadelphia case, Excel and an add-in was used to evaluate different vendor options. Answer: TRUE Diff: 2 Page Ref: 321 2) Modeling is a key element for prescriptive analytics. Answer: TRUE Diff: 1 Page Ref: 322 3) Business analysis is the monitoring, scanning, and interpretation of collected environmental information. Answer: FALSE Diff: 2 Page Ref: 324 4) Online commerce and communication has created an immense need for forecasting and an abundance of available information for performing it. Answer: TRUE Diff: 2 Page Ref: 324 5) All quantitative models are typically made up of six basic components. Answer: FALSE Diff: 2 Page Ref: 328 6) Result variables are considered independent variables. Answer: FALSE Diff: 2 Page Ref: 328 7) In decision making under uncertainty, it is assumed that complete knowledge is available. Answer: FALSE Diff: 2 Page Ref: 330 8) A decision made under risk is also known as a probabilistic or stochastic decision-making situation. Answer: TRUE Diff: 2 Page Ref: 331 9) Spreadsheets include all possible tools needed to deploy a custom DSS. Answer: FALSE Diff: 2 Page Ref: 332 10) Spreadsheets are clearly the most popular developer modeling tool. Answer: FALSE Diff: 2 Page Ref: 333
11)Every LP model has some internal intermed iate variables that are not explicitly stated Answer: TRUE Diff: 2 Page Ref: 340 12)A model builder makes predictions and assumptions regard ing input data, many of which deal with the assessment of certain futures Answer: FALSE Diff: 2 Page Ref: 347 13)Many quantitative models of decision theory are based on comparing a single measure of effectiveness, generally some form of utility to the decision maker Answer TRUE Diff: 2 Page Ref: 346 14)A decision table shows the relationships of the problem graphically and can handle complex situations in a compact form Answer: FALSE Diff: 2 Page Ref: 350-351 15) Decision situations that involve a finite and usually not too large number of alternatives are modeled through an approach called decision analysis Answer: TRUE Diff: 2 Page Ref: 349 16) The pessimistic approach assumes that the worst possible outcome for each alternative will occur and selects the best of these answe Diff: 2 Page Ref: 350-351 17) Simulation is the appearance of reality answe RUE Diff: 1 Page Ref: 352 18)Simulation is normally used only when a problem is too complex to be treated using numerical optimization techniques Answer: TRUE Diff: 2 age Ref: 352 19)Simulations are an experimental, expensive, error-prone method for gaining insight into complex decision-making situations Answer: FALSE Diff: 2 Page Ref: 359 20)VIS uses animated computer graphic displays to present the impact of d ifferent managerial Answer: TRUE Diff: 2 Page Ref: 360 Copyright C 2018 Pearson Education, Inc
2 Copyright © 2018 Pearson Education, Inc. 11) Every LP model has some internal intermediate variables that are not explicitly stated. Answer: TRUE Diff: 2 Page Ref: 340 12) A model builder makes predictions and assumptions regarding input data, many of which deal with the assessment of certain futures. Answer: FALSE Diff: 2 Page Ref: 347 13) Many quantitative models of decision theory are based on comparing a single measure of effectiveness, generally some form of utility to the decision maker. Answer: TRUE Diff: 2 Page Ref: 346 14) A decision table shows the relationships of the problem graphically and can handle complex situations in a compact form. Answer: FALSE Diff: 2 Page Ref: 350-351 15) Decision situations that involve a finite and usually not too large number of alternatives are modeled through an approach called decision analysis. Answer: TRUE Diff: 2 Page Ref: 349 16) The pessimistic approach assumes that the worst possible outcome for each alternative will occur and selects the best of these. Answer: TRUE Diff: 2 Page Ref: 350-351 17) Simulation is the appearance of reality. Answer: TRUE Diff: 1 Page Ref: 352 18) Simulation is normally used only when a problem is too complex to be treated using numerical optimization techniques. Answer: TRUE Diff: 2 Page Ref: 352 19) Simulations are an experimental, expensive, error-prone method for gaining insight into complex decision-making situations. Answer: FALSE Diff: 2 Page Ref: 359 20) VIS uses animated computer graphic displays to present the impact of different managerial decisions. Answer: TRUE Diff: 2 Page Ref: 360
21)A more general form of an influence diagram is called a(n) A)forecast B)environmental scan C)cognitive map D)static m Answer: C Diff: 2 Page Ref: 324 2)A(n) is a graphical representation of a model A)multid imensional analysis B)influence diagram C)OLAP model D)Whisker plot answer: B Diff: 2 Page Ref: 327 23)Which of the following is NOT a component of a quantitative model? A)result variables B)decision variables C)classes D)parameters Al nswer C Diff: 2 Page Ref: 328 24) Intermed iate result variables reflect intermediate outcomes in A)mathematical models B)flowcharts C)decision trees D)ROI calculations Diff: 2 Page Ref: 329 25)When the decision maker must consider several possible outcomes for each alternative, each with a given probability of occurrence, this is decision making under A)certainty B)uncertainty C)risk D)d Answer: C Diff: 2 Page Ref: 331 Copyright C 2018 Pearson Education, Inc
3 Copyright © 2018 Pearson Education, Inc. 21) A more general form of an influence diagram is called a(n) A) forecast. B) environmental scan. C) cognitive map. D) static model. Answer: C Diff: 2 Page Ref: 324 22) A(n) ________ is a graphical representation of a model. A) multidimensional analysis B) influence diagram C) OLAP model D) Whisker plot Answer: B Diff: 2 Page Ref: 327 23) Which of the following is NOT a component of a quantitative model? A) result variables B) decision variables C) classes D) parameters Answer: C Diff: 2 Page Ref: 328 24) Intermediate result variables reflect intermediate outcomes in A) mathematical models. B) flowcharts. C) decision trees. D) ROI calculations. Answer: A Diff: 2 Page Ref: 329 25) When the decision maker must consider several possible outcomes for each alternative, each with a given probability of occurrence, this is decision making under A) certainty. B) uncertainty. C) risk. D) duress. Answer: C Diff: 2 Page Ref: 331
26)When the decision maker knows exactly what the outcome of each course of action will be this is decision making under A)certainty B)uncertainty C)risk D)duress Answer: A Diff: 2 Page Ref: 330 27)A(n) preadsheet model represents behavior over time A)static B)dynamic C)looped D)add-in A nswer B Diff: 2 Page Ref: 336 28)Important spreadsheet features for modeling include all of the following EXCEPT A)what-if analysis B)goal seeki C)macros D)pivot tables Answer: D Diff: 2 Page Ref: 335 29)Which of the following is NoT a characteristic displayed by a LP allocation problem? A)Alimited quantity of economic resources is available for allocation B) The resources are used in the production of products or services C) There are two or more ways in which the resources can be used D)The problem is not bound by constraints Diff: 2 Page Ref: 338 30)Which of the following is Not a characteristic displayed by a LP allocation problem? A) Each activity in which the resources are used yields a return in terms of the stated goal B) The resources are used in the production of products or services C)There is a single way in which the resources can be used D)The allocation is usually restricted by several limitations and requirements Answer: C Diff: 2 Page Ref: 338 Copyright C 2018 Pearson Education, Inc
4 Copyright © 2018 Pearson Education, Inc. 26) When the decision maker knows exactly what the outcome of each course of action will be, this is decision making under A) certainty. B) uncertainty. C) risk. D) duress. Answer: A Diff: 2 Page Ref: 330 27) A(n) ________ spreadsheet model represents behavior over time. A) static B) dynamic C) looped D) add-in Answer: B Diff: 2 Page Ref: 336 28) Important spreadsheet features for modeling include all of the following EXCEPT A) what-if analysis. B) goal seeking. C) macros. D) pivot tables. Answer: D Diff: 2 Page Ref: 335 29) Which of the following is NOT a characteristic displayed by a LP allocation problem? A) A limited quantity of economic resources is available for allocation. B) The resources are used in the production of products or services. C) There are two or more ways in which the resources can be used. D) The problem is not bound by constraints. Answer: D Diff: 2 Page Ref: 338 30) Which of the following is NOT a characteristic displayed by a LP allocation problem? A) Each activity in which the resources are used yields a return in terms of the stated goal. B) The resources are used in the production of products or services. C) There is a single way in which the resources can be used. D) The allocation is usually restricted by several limitations and requirements. Answer: C Diff: 2 Page Ref: 338
31)Which of the following is NOT an assumption used by a LP allocation problem? A)Returns from different allocations can be compared B) The return from any allocation is independent of other allocations C)The total return is the sum of the returns yielded by the different activities D)All data are unknown with decision making under uncertainty A nswer Diff: 2 Page Ref: 338 32)Which of the following is NOT an assumption used by a Lp allocation problem? A)The resources are to be used in the most economical manner B) The return from any allocation is independent of other allocations C)Total returns cannot be compared D)All data are known with certainty A nswer C Diff: 2 Page Ref: 338 33) This method calculates the values of the inputs necessary to achieve a desired level of an output A)goal seek B)what-if C)sensitivity D)LP answer: A Diff: 2 Page Ref: 348 34)This method calculates the values of the inputs necessary to generate a zero profit outcome B)what-if C)sensitivity D)break-even Diff: 2 Page Ref: 349 35)The most common method for solving a risk analysis problem is to select the alternative with A)smallest expected value B)greatest expected value C)mean expected value D)med ian expected value Al nswer Diff: 2 Page Ref: 351 Copyright C 2018 Pearson Education, Inc
5 Copyright © 2018 Pearson Education, Inc. 31) Which of the following is NOT an assumption used by a LP allocation problem? A) Returns from different allocations can be compared. B) The return from any allocation is independent of other allocations. C) The total return is the sum of the returns yielded by the different activities. D) All data are unknown with decision making under uncertainty. Answer: D Diff: 2 Page Ref: 338 32) Which of the following is NOT an assumption used by a LP allocation problem? A) The resources are to be used in the most economical manner. B) The return from any allocation is independent of other allocations. C) Total returns cannot be compared. D) All data are known with certainty. Answer: C Diff: 2 Page Ref: 338 33) This method calculates the values of the inputs necessary to achieve a desired level of an output. A) goal seek B) what-if C) sensitivity D) LP Answer: A Diff: 2 Page Ref: 348 34) This method calculates the values of the inputs necessary to generate a zero profit outcome. A) goal seek B) what-if C) sensitivity D) break-even Answer: A Diff: 2 Page Ref: 349 35) The most common method for solving a risk analysis problem is to select the alternative with the A) smallest expected value. B) greatest expected value. C) mean expected value. D) median expected value. Answer: B Diff: 2 Page Ref: 351
36)A decision tree can be cumbersome if there are A)uncertain results B)few alternatives C)many alternatives D)pre-existing decision tables Answer C Diff: 2 Page Ref: 351 37)Which of the following is NOT a disadvantage of a simulation? A)An optimal solution cannot be guaranteed but relatively good ones are generally found B)Simulation software sometimes requires special skills because of the complexity of the formal solution method C) Simulation is often the only dss modeling method that can readily handle relatively unstructured problems D)Simulation model construction can be a slow and costly process, although newer modeling systems are easier to use than ever Answer: C Diff: 2 Page Ref: 355 38)Which of the following is the order of simulation methodology? A) Define the problem, Construct the simulation model, Test and validate the model, Design the experiment, Conduct the experiment, Implement the results, Evaluate the results B)Construct the simulation model, Test and validate the model, define the problem, Design the experiment, Conduct the experiment, Evaluate the results, Implement the results C) Define the problem, Construct the simulation model, Test and validate the model, Evaluate the results, Implement the results, Design the experiment, Conduct the experiment D)Define the problem, Construct the simulation model, Test and valid ate the model, Design the experiment, Conduct the experiment, Evaluate the results, Implement the results Al newer Diff: 2 Page Ref: 355-356 39)What type of VIM models display a visual image of the result of one decision alternative at a time? A)static B)dynamic C)DS Answer A Diff: 2 Page Ref: 360 Copyright C 2018 Pearson Education, Inc
6 Copyright © 2018 Pearson Education, Inc. 36) A decision tree can be cumbersome if there are A) uncertain results. B) few alternatives. C) many alternatives. D) pre-existing decision tables. Answer: C Diff: 2 Page Ref: 351 37) Which of the following is NOT a disadvantage of a simulation? A) An optimal solution cannot be guaranteed, but relatively good ones are generally found. B) Simulation software sometimes requires special skills because of the complexity of the formal solution method. C) Simulation is often the only DSS modeling method that can readily handle relatively unstructured problems. D) Simulation model construction can be a slow and costly process, although newer modeling systems are easier to use than ever. Answer: C Diff: 2 Page Ref: 355 38) Which of the following is the order of simulation methodology? A) Define the problem, Construct the simulation model, Test and validate the model, Design the experiment, Conduct the experiment, Implement the results, Evaluate the results. B) Construct the simulation model, Test and validate the model, Define the problem, Design the experiment, Conduct the experiment, Evaluate the results, Implement the results. C) Define the problem, Construct the simulation model, Test and validate the model, Evaluate the results, Implement the results, Design the experiment, Conduct the experiment. D) Define the problem, Construct the simulation model, Test and validate the model, Design the experiment, Conduct the experiment, Evaluate the results, Implement the results. Answer: D Diff: 2 Page Ref: 355-356 39) What type of VIM models display a visual image of the result of one decision alternative at a time? A) static B) dynamic C) DSS D) VIS Answer: A Diff: 2 Page Ref: 360
40)If a simulation result does NoT match the intuition or judgment of the decision maker, what can occu A)read/write error B)visual distortion C) project failure D)confidence gap Answer: D Diff: 2 Page Ref: 359 41)A(n) model can be constructed under assumed environments of certainty nswer dynamic Diff: 2 Page Ref: 324 42)Selecting the best to work with is a laborious yet important task for companies and government organizations Answer: vend Diff: 2 Page Ref: 320 43)Identification of a model's variables(e.g, decision, result, uncontrollable) is critical, as are the relationships among the Answer: variables Diff: 2 Page Ref: 324 like data, must be managed to maintain their integrity, and thus their applicability Answer: Models Diff: 2 Page Ref: 326 45)Factors that are not under the control of the decision maker but can be fixed are called Answer: parameters Diff: 2 Page Ref: 328 46)The components of a quantitative model are linked by expressions Answer: algebraic Diff: 2 Page Ref: 329 47)A probabilistic decision-making situation is a decision made under Answer: risk Diff: 2 age Ref: 331 48)Risk is a decision-making method that analyzes the risk(based on assumed known probabilities)associated with different alternatives Answer: analysis Diff: 2 Page Ref: 331 Copyright C 2018 Pearson Education, Inc
7 Copyright © 2018 Pearson Education, Inc. 40) If a simulation result does NOT match the intuition or judgment of the decision maker, what can occur? A) read/write error B) visual distortion C) project failure D) confidence gap Answer: D Diff: 2 Page Ref: 359 41) A(n) ________ model can be constructed under assumed environments of certainty. Answer: dynamic Diff: 2 Page Ref: 324 42) Selecting the best ________ to work with is a laborious yet important task for companies and government organizations. Answer: vendors Diff: 2 Page Ref: 320 43) Identification of a model's variables (e.g., decision, result, uncontrollable) is critical, as are the relationships among the ________. Answer: variables Diff: 2 Page Ref: 324 44) ________, like data, must be managed to maintain their integrity, and thus their applicability. Answer: Models Diff: 2 Page Ref: 326 45) Factors that are not under the control of the decision maker but can be fixed, are called ________. Answer: parameters Diff: 2 Page Ref: 328 46) The components of a quantitative model are linked by ________ expressions. Answer: algebraic Diff: 2 Page Ref: 329 47) A probabilistic decision-making situation is a decision made under ________. Answer: risk Diff: 2 Page Ref: 331 48) Risk ________ is a decision-making method that analyzes the risk (based on assumed known probabilities) associated with different alternatives. Answer: analysis Diff: 2 Page Ref: 331
49)Spreadsheets use to extend their functionality Answer: add-ins Diff: 2 Page Ref: 333 50) is performed by indicating a target cell, its desired value, and a changing cell Answer: Goal seeking Diff: 2 Page Ref: 335 51)Ofthe available solutions, at least one is the best, in the sense that the degree of goal attainment associated with it is the highest; this is called a(n) solution Answer: optimal Diff: 2 Page Ref: 338 52) Every LP model is composed of variables whose values are unknown and are searched for Answer: decision Diff: 2 Page Ref: 338 analysis attempts to assess the impact of a change in the input data or parameters on the proposed solution. Answer: Sensitivity Diff: 2 Page Ref: 347 analysis is structured as"What will happen to the solution if an input variable, an assumption, or a parameter value is changed? Answer: What-if Diff: 2 Page Ref: 348 approach assumes that the best possible outcome of each alternative will occur and then selects the best of the best Answer: optimistic Diff: 2 Page Ref: 350 56) Multiple goals is a decision situation in which alternatives are evaluated with several sometimes Answer: conflicting Diff: 2 Page Ref: 352 57)I simulation, one or more of the independent variables(.g, the demand in an inventory problem) are subject to chance variation Answer: probabilistic Diff: 3 Page Ref: 356 58)The most common simulation method for business decision problems is the simulation Answer: Monte Carlo Diff: 3 Page Ref: 357 Copyright C 2018 Pearson Education, Inc
8 Copyright © 2018 Pearson Education, Inc. 49) Spreadsheets use ________ to extend their functionality. Answer: add-ins Diff: 2 Page Ref: 333 50) ________ is performed by indicating a target cell, its desired value, and a changing cell. Answer: Goal seeking Diff: 2 Page Ref: 335 51) Of the available solutions, at least one is the best, in the sense that the degree of goal attainment associated with it is the highest; this is called a(n) ________ solution. Answer: optimal Diff: 2 Page Ref: 338 52) Every LP model is composed of ________ variables whose values are unknown and are searched for. Answer: decision Diff: 2 Page Ref: 338 53) ________ analysis attempts to assess the impact of a change in the input data or parameters on the proposed solution. Answer: Sensitivity Diff: 2 Page Ref: 347 54) ________ analysis is structured as "What will happen to the solution if an input variable, an assumption, or a parameter value is changed?" Answer: What-if Diff: 2 Page Ref: 348 55) The ________ approach assumes that the best possible outcome of each alternative will occur and then selects the best of the best. Answer: optimistic Diff: 2 Page Ref: 350 56) Multiple goals is a decision situation in which alternatives are evaluated with several, sometimes ________, goals. Answer: conflicting Diff: 2 Page Ref: 352 57) In ________ simulation, one or more of the independent variables (e.g., the demand in an inventory problem) are subject to chance variation. Answer: probabilistic Diff: 3 Page Ref: 356 58) The most common simulation method for business decision problems is the ________ simulation. Answer: Monte Carlo Diff: 3 Page Ref: 357
59)The approach can be used in conjunction with artificial intelligence Answer, VIM Diff: 3 Page Ref: 360 60)Conventional generally reports statistical results at the end of a set of experiments Answer: simulation Diff: 3 Page Ref: 359 61)Why is there a trend to developing and using cloud -based tools for modeling? access to powerful tools and pre-existing models that they can use to solve business problems Answer: This trend exists because it simplifies the process for users. These systems give the Because these systems are cloud-based, there are costs associated with operating them and maintaining them Diff: 2 Page Ref: 327 62) List and briefly discuss the major components of a quantitative model Answer: These components include 1. Result(outcome)variables reflect the level of effectiveness of a system; that is, they ind icate how well the system performs or attains its goal(s) 2. Decision variables describe altemative courses of action the decision maker controls the decision variables 3. Uncontrollable Variables-in any decision-making situation, there are factors that affect the result variables but are not under the control of the dec ision maker 4. Intermediate result variables reflect intermed iate outcomes in mathematical models Diff: 2 Page Ref: 328-329 63)Why do many believe that making decisions under uncertainty is more difficult than making decisions under risk? but a known probability of the likelihood of those outcomes Diff: 2 Page Ref: 331 64)Why are spreadsheet applications so commonly used for decision modeling? Answer: Spreadsheets are often used for this purpose because they are very approachable and easy to use for end users. Spread sheets have a shallow learning curve that allows basic functions to be learned quickly. Add itionally, spreadsheets have evolved over time to include a more robust set of features and functions These functions can also be augmented through the use of add-ins, many of which are designed with decision support systems in mind Diff: 2 Page Ref: 332 Copyright C 2018 Pearson Education, Inc
9 Copyright © 2018 Pearson Education, Inc. 59) The ________ approach can be used in conjunction with artificial intelligence. Answer: VIM Diff: 3 Page Ref: 360 60) Conventional ________ generally reports statistical results at the end of a set of experiments. Answer: simulation Diff: 3 Page Ref: 359 61) Why is there a trend to developing and using cloud-based tools for modeling? Answer: This trend exists because it simplifies the process for users. These systems give them access to powerful tools and pre-existing models that they can use to solve business problems. Because these systems are cloud-based, there are costs associated with operating them and maintaining them. Diff: 2 Page Ref: 327 62) List and briefly discuss the major components of a quantitative model. Answer: These components include: 1. Result (outcome) variables reflect the level of effectiveness of a system; that is, they indicate how well the system performs or attains its goal(s). 2. Decision variables describe alternative courses of action. The decision maker controls the decision variables. 3. Uncontrollable Variables - in any decision-making situation, there are factors that affect the result variables but are not under the control of the decision maker 4. Intermediate result variables reflect intermediate outcomes in mathematical models. Diff: 2 Page Ref: 328-329 63) Why do many believe that making decisions under uncertainty is more difficult than making decisions under risk? Answer: This opinion is commonly held because making decisions under uncertainty allows for an unlimited number of possible outcomes, yet no understanding of the likelihood of those outcomes. In contrast, decision-making under risk allows for an unlimited number of outcomes, but a known probability of the likelihood of those outcomes. Diff: 2 Page Ref: 331 64) Why are spreadsheet applications so commonly used for decision modeling? Answer: Spreadsheets are often used for this purpose because they are very approachable and easy to use for end users. Spreadsheets have a shallow learning curve that allows basic functions to be learned quickly. Additionally, spreadsheets have evolved over time to include a more robust set of features and functions. These functions can also be augmented through the use of add-ins, many of which are designed with decision support systems in mind. Diff: 2 Page Ref: 332
65) How are linear programming models vulnerable when used in complex situation? Answer: These models have the ability to be vulnerable when used in very complex situations for a number of reasons. One reason focuses on the possibility that not all parameters can be known or understood. another concern is that the standard characteristics of a linear programming calculation may not hold in more dynamic, real-world environments. Additionally, in more complex environments all actors may not be wholly rational and economic issues Diff: 2 Page Ref: 338 66) Provide some examples where a sensitivity analysis may be used Answer: Sensitivity analyses are used for Revising models to eliminate too-large sensitivities Adding details about sensitive variables or scenarios Obtaining better estimates of sensitive external variables Altering a real-world system to reduce actual sensitivities Accepting and using the sensitive(and hence vulnerable) real world, leading to the continuous and close monitoring of actual results Diff: 3 Page Ref: 347 67) List and describe the most common approaches for treating uncertainty Answer: There are two common approaches to dealing with uncertainty The first is the optimistic approach and the second is the pessimistic approach. The optimistic approach assumes that the outcomes for all alternatives will be the best possible and then the best of each of those may be selected Under the pessimistic approach the worst possible outcome is assumed for each alternative and then the best of the worst are selected Diff: 2 Page Ref: 350-351 68)Why is the Monte Carlo simulation popular for solving business problems? Answer: The Monte Carlo simulation is a probabilistic simulation. It is designed around a model of the decision problem, but the problem does not consider the uncertainty of any of the variables. This allows for a huge number of simulations to be run with random changes within each of the variables. In this way, the model may be solved hundreds or thousands of times before it is completed. These results can then be analyzed for either the dependent or erformance variables using statistical distributions. This demonstrates a number of possible solutions, as well as providing information about the manner in which variables will respond under different levels of uncertainty Diff: 3 Page Ref: 357 Copyright C 2018 Pearson Education, Inc
10 Copyright © 2018 Pearson Education, Inc. 65) How are linear programming models vulnerable when used in complex situation? Answer: These models have the ability to be vulnerable when used in very complex situations for a number of reasons. One reason focuses on the possibility that not all parameters can be known or understood. Another concern is that the standard characteristics of a linear programming calculation may not hold in more dynamic, real-world environments. Additionally, in more complex environments all actors may not be wholly rational and economic issues. Diff: 2 Page Ref: 338 66) Provide some examples where a sensitivity analysis may be used. Answer: Sensitivity analyses are used for: • Revising models to eliminate too-large sensitivities • Adding details about sensitive variables or scenarios • Obtaining better estimates of sensitive external variables • Altering a real-world system to reduce actual sensitivities • Accepting and using the sensitive (and hence vulnerable) real world, leading to the continuous and close monitoring of actual results Diff: 3 Page Ref: 347 67) List and describe the most common approaches for treating uncertainty. Answer: There are two common approaches to dealing with uncertainty. The first is the optimistic approach and the second is the pessimistic approach. The optimistic approach assumes that the outcomes for all alternatives will be the best possible and then the best of each of those may be selected. Under the pessimistic approach the worst possible outcome is assumed for each alternative and then the best of the worst are selected. Diff: 2 Page Ref: 350-351 68) Why is the Monte Carlo simulation popular for solving business problems? Answer: The Monte Carlo simulation is a probabilistic simulation. It is designed around a model of the decision problem, but the problem does not consider the uncertainty of any of the variables. This allows for a huge number of simulations to be run with random changes within each of the variables. In this way, the model may be solved hundreds or thousands of times before it is completed. These results can then be analyzed for either the dependent or performance variables using statistical distributions. This demonstrates a number of possible solutions, as well as providing information about the manner in which variables will respond under different levels of uncertainty. Diff: 3 Page Ref: 357
