Problem1: - A manufacturer of a product interested to know whether he should launch deluXe

model or Popular model. If the deluXe model is launched the probability that the market will be
good, fair, and poor are the given by 0.3, 0.4 & 0.3 respectively. With payoffs Rs 140000, 70000
and -10000 respectively. Popular model is introduced, there is a possibility of 0.4, 0.3 & 0.3
probability with Rs. 150000, 80000 and -15000 payoffs respectively. Draw a decision tree and
advise the management the better model.

Ans:-

Decision:- Decision one has two branches and their respective EMVs are 67000 and 79500.
MaXimum EMV is 79500. Hence it is advised to go for popular model.
Prob:2
A business man has two independent investment alternatives available A&B. he cannot accept
both of them simultaneously. Due to lack of capital he can choose to take A first and then stop or
if A is successful then take B or vice versa. The probability of success on A 0.7 and for B 0.4.
Both investments require an initial capital outlay of Rs 2000/- and both return nothing if the
venture is unsuccessful. Successful completion of A will return Rs 3000/- over cost(3000+2000)
and the successful completion of B will return Rs 5000/-. Draw the decision tree and determine
the best strategy.
Ans:

Decision :Accept Project A if it is successful invest in Project B.

Prob 3:-
A finance manager is considering drilling a well. In the past only 70% of the wells drilled were
successful at 20mtrs depth in that area. On finding no water at 20mtrs some persons in that area
drilled the well further up to 25mtrs. But only 20% struck water at that level. The cost of drilling
is Rs 500/- per mtr. The finance manager estimated that if he does not get water in his well he
will have to pay Rs 15000/- to buy water from out side. The following decisions are considered.
A) Do not drill any well.
B) Drill up to 20 mtrs.
C) If no water is found at 20mtrs drill up to 25 mtrs.
Find the optimum strategy.
Ans:
 Multiple Regression
Fitting of regression equation to estimate a particular variable Y = na+b1∑X1+b2∑X2 to find out
the value of ‘A’ b1 & b2. The following equations may be useful.
Y=Na + b1X1 + b2X2
∑Y = Na + b1∑X1 + b2∑X2
∑X1Y = a ∑X1 + b1∑X12 + b2∑X1X2
∑X2Y = a ∑X2 + b1∑X1X2 + b2 ∑X22
Problem:-
Calculate the multiple regression co-efficient Y when x1 = 3 and x2 = 1.6 from the details given
below.
Y X1 X2 YX1 YX2 X12 X22 X 1X2
30 11 10 330 300 121 100 110
25 10 15 250 375 100 225 150
16 5 12 80 192 25 144 60
18 6 9 108 162 36 81 54
19 4 18 76 342 16 324 72
108 36 64 844 1371 298 874 446

N=5
∑Y = Na + b1∑X1 + b2∑X2
108 = 5(a) + b1(36) + b2 (64)

 5a + 36b1 + 64 b2 = 108 1

∑X1Y = a ∑X1 + b1∑X12 + b2∑X1X2

844 = 36 (a) + 298 (b1) + b2 (446)
36a +298b1 + 446b2 = 844 2

∑X2Y = a ∑X2 + b1∑X1X2 + b2 ∑X22

1371 = a (64) + b1 (446) +b2(874)
3
64a + 446b1 +874b2 = 1371
Equation 1 and 2
Eq (1)* 36 and Eq (2)*5

180a + 1296b1 + 2304 b2 = 3888

180a + 1490b1 + 2230 b2 = 4220
_ _ _ _

- (-194 b1 + 74 b2 = -332)
194 b1 - 74 b2 = 332 4

Equation 1 and 3
(1)* 64 and (3)*5

320 a + 2304 b1 + 4096 b2 = 6912

320a + 2230b1 + 4370 b2 = 6855
_ _ _ _

74b1 - 274 b2 = 57 5

Eq (4)*74 and Eq(5)* 194

14356 b1 - 5476 b2 = 24568
14356 b1 - 53156 b2 = 11058
- - -
47680 b2 = 13510

 b2 = 13510
47680
b2 = 0.28
Substitute b2 = 0.28 in equation (4)
194 b1 + 74 b2 = 332
194 b1 + 74 (0.28) = 332
194b1 = 332+2072
194b1 = 352.72

b2 = 352.72/194 = 1.82

Substitute b1 and b2 values in equation (1)

5a + 36b1 + 64 b2 = 108
5a + 36 (1.82) + 64 (0.28) = 108
5a +65.52 +17.92 = 108
5a + 83.44 = 108
5a = 108-83.44
a =24.56 / 5
a = 4.912 or 5
Find Y if x1=3 and x2 = 1.6
Y=Na + b1X1 + b2X2

 Y = 5(4.912) + 1.82 (3) + 0.28 (1.6)

= 24.56 + 5.46 + 0.448
=30.468