Cairo University _ Academic Year: 2015 - 2016

DSS Applications: Mid-Term Exam _ 1 Hour

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Question I: Formulation Question (5 Grades)

A company manufactures pegs. The Company wishes to maximize monthly profit. A
Wooden peg costs C1 dollars, and sells for P1. A Plastic peg costs C2 and sells for P2.
The company wants at least 60% of their sales to be wooden pegs. And the total
(monthly) cost must not exceed $20,000. Formulate a mathematical model.

There are two ways to solve it … both r right

U can have another variable x3; or u can formulate without it
MAX (P1 – C1)X1 + (P2 – C2)X2
ST X1 + X2 – X3 = 0
X1 - 0.6X3  0
C1X1 + C2X2 ≤ 20000
X1, X2, X3  0

Question II: TRUE/FALSE QUESTIONS (2 Grades)

1. A non-binding constraint is always a redundant constraint. F
2. The expected value criterion ignores the decision maker’s attitude toward risk. T

Question III: MULTIPLE CHOICE QUESTIONS (3 Grades)

1. SAMSUNG may build a factory at Beni-Suef (Y1), or it may not. It may also
build a warehouse at the same site (W1). But SAMSUNG will not build a
warehouse without also building a factory. So, its choices are: (1) neither
factory nor warehouse; (2) factory only; or (3) factory and warehouse. The
appropriate linear constraint to express this is:
a. W1 – Y1  0
b. W1 – Y1  1
c. W1 + Y1  0
d. W1 + Y1  1
2. An over-constrained linear programming problem results in what type of
solution?
a. Unbounded.
b. Degenerate.
c. Infeasible.
d. Sub-optimal.
3. Which statement is not true if a maximization problem has an unbounded
solution?
a. A limiting constraint has been omitted.
b. The objective function value goes to ∞
c. The values of all decision variables go to ∞
d. The feasible region is unbounded.

Question IV: Decision Models (6 Grades)

Consider the following payoff table in which D1 through D3 represent decisions, S1
through S2 represent states of nature, and the values in the cells represent profits.
Suppose that each state of nature is equally likely to occur.

S1 S2
D1 0 5
D2 6 -4
D3 0 4

1. What is the optimal decision using the expected value criterion? D1 EV=
2.5
2. Compute the expected value of perfect information. 3 (5.5-2.5)
3. What is the optimal decision using the expected utility criterion? D2 EU =
0.5 Suppose the utility function is as follows:
Question V: Bayes' Law (4 Grades)
Consider a decision making problem with two states of nature: S1, and S2.
Suppose that each state of nature is equally likely to occur. Suppose also that
there are two possible sample indicators, I1 and I2; and the following conditional
probabilities hold: P(I1|S1) = P(I2|S2) = 0.6.
Compute P(S2|I2)

Prior Probs:
P(S1)=P(S2) = 0.5
Cond. Probs:
P(I2|S2) = 0.6. P(I2|S1) = 1-0.6=0.4.
Joint Probs
P(I2∩S1) = P(I2|S1) * P(S1) = 0.4*0.5=0.2
P(I2∩S2) = P(I2|S2) * P(S2) = 0.6*0.5=0.3

P(I2) = P(I2∩S1) + P(I2∩S2) = 0.2+0.3=0.5

Posterior Prob:
P(S2|I2) = P(I2∩S2) /P(I2)= 0.3/0.5=0.6
Good Luck

Dr Mohamed Saleh