6. Problem Solving
Decision Analysis — Quiz
Test your understanding of decision analysis with 5 practice questions.
Practice Questions
Question 1
A company is deciding between two projects. Project A has a 70% chance of yielding a profit of $50,000 and a 30% chance of a loss of $10,000. Project B has a 60% chance of yielding a profit of $40,000 and a 40% chance of a loss of $5,000. Which project has the higher expected value?
Question 2
A decision tree shows two possible outcomes for a new product launch: a high-demand scenario with a probability of 0.4 and a low-demand scenario with a probability of 0.6. The profit in the high-demand scenario is 200,000, and the profit in the low-demand scenario is $50,000. What is the expected profit of the product launch?
Question 3
In a cost-benefit analysis, a project has an initial cost of $100,000 and is expected to generate annual benefits of $30,000 for 5 years. There are no additional costs. What is the total net benefit of the project over the 5-year period, ignoring discounting?
Question 4
A company is considering two strategies. Strategy X has a 50% chance of yielding $120,000 profit and a 50% chance of yielding $20,000 loss. Strategy Y has a 70% chance of yielding $80,000 profit and a 30% chance of yielding $10,000 loss. What is the expected value of Strategy Y?
Question 5
A decision-maker is using a decision tree to evaluate three options: Option A has an expected value of $25,000, Option B has an expected value of $30,000, and Option C has an expected value of $15,000. If the decision-maker is risk-neutral, which option should they choose?