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354K Game Theory

Problem Set No. 2 1) The Electa Company has to ship 10,000 television sets from its factory in Manila to an American importer in New York City. As can be seen in Figure 1, the firm can either ship the sets by boat directly to Los Angeles or ship them via the Panama Canal to either New Orleans or New York City. From Los Angeles it can ship the sets to New York by truck or to New Orleans by truck or train. From New Orleans it can ship the sets to New York by either truck or train or boat. Draw the firms decision tree.
Truck Ship

New York City

Los Angeles
Train or Truck


Train or Truck, or Ship

Panama Canal New Orleans

FIGURE 1 The routing possibilities between Manila and New York City.

2) This is a continuation of problem 1). Listed here are the freight charges (in dollars per television set) for each mode of transportation and each route: Transportation Costs (dollars per television set)

By boat: Manila-Los Angeles Manila-New Orleans1 Manila-New York1 New Orleans-New York By Truck: Los Angeles-New York Los Angeles-New Orleans

$30 $50 $75 $25

$50 $30

This includes the fee for using the Panama Canal.

New Orleans-New York By Train: Los Angeles-New Orleans New Orleans-New York


$20 $20

In addition, every time television sets are transferred between carriers, Electa incurs a cost in paid labor time, in damage, and in theft. This transfer cost (in dollars per set) is as follows: Transfer Costs (dollars per television set)

Boat-train or train-boat Boat-truck or truck-boat Train-truck or truck-train Boat-boat Train-train Truck-truck

$6 $2 $4 $4 (Caution: no fee at Panama Canal) $1 $1

The Electa Company wants to minimize total shipping cost per set (transportation plus transfer). From the transportation and transfer costs, determine the total cost (in dollars per set) of using each possible routing between Manila and New York City. Find the firms best shipping route and modes of transport.

3) (continuation of problem 2). Use the tables in problem 2) and the method of backwards induction to find the best decision at every decision node on its decision tree.

4) Every time a motion is brought before the Oberlin City Council, the council can either approve the motion as read, amend it, or defeat it. In order for a motion to be officially adopted by the Oberlin City Council, the council must approve the motion as read in two successive meetings. If the motion is approved for the first time, or is amended, then it must be brought up at the next council meeting. Once approved, a motion cannot be amended later. A motion can be amended only once. If the motion is defeated, it cannot be brought up again during the current councils term. Draw the decision tree for this legislative process.

5) Give an example of a decision problem from your life. Draw a decision tree for the problem with properly labeled nodes and branches.