QM323 Final Exam Question Bank

Question 1

What is the goal of an optimization model?

A. Maximize Profit
B. Minimize Cost
C. Maximize the objective function
D. Maximize the quantity sold
E. Optimize the objective function

Answer 1

E. Optimize the objective function
(The goal is to optimize whatever the objective is; this could be either maximizing or minimizing it)

Question 2

True or False: A “Cost-Plus Pricing” model is the optimal model to use to price your product because it ensures a certain profit for each unit sold.

Answer 2

False; it is not the profit-maximizing price so it is not the optimal model

Question 3

In the Pete’s Pipes example discussed in the last class, what would happen to our Choice Variable (Price) if there is an increase in fixed costs (from 10 to 15) and nothing else changes?
A* The optimal price will go up
B* The optimal price will go down
C* The optimal price will not change
D* There is not enough information to make the decision

Answer 3

C. The optimal price will not change ( Fixed cost does not impact revenue and does not change with quantity.So, while profit will go down, the optimal price does not change)

Question 4

In the Pete’s Pipes example discussed in the last class, what would happen to our Choice Variable (Price) if there is an increase in marginal cost (from 1.5 to 1.8) and nothing else changes?
A* The optimal price will go up
B* The optimal price will go down
C* The optimal price will not change
D* There is not enough information to make the decision

Answer 4

A. The optimal price will go up : Marginal cost is tied to Quantity, so it will impact the optimal price(Recall: change in fixed cost does not impact price)

Question 5

Demand for Coke is given by the following equation
Q = 340 – 150Price + 100Psubstitute + 0.05AvgIncome
What happens to the Q of Coke sold when AvgIncome increases by $5,000?
A Q increases by 250
B* Q increases by 5,000
C* Q increases by 500
D* Q increases by 50

Answer 5

A. Q increases by 250

Question 6

This analytical tool generates a distribution that we can expect to observe for an outcome variable based on assumptions about the distributions of uncertain input parameters
a) Simulation analysis
b) Scenario analysis
c) Sensitivity analysis

Answer 6

A) Simulation analysis

Question 7

This analysis method allows us to quantify the impact of a change in an uncertain variable on an outcome variable such as profit or NPV.

a) Simulation analysis
b) Scenario analysis
c) Sensitivity analysis

Answer 7

C) sensitivity analysis

Question 8

The following analysis method involves making a list of possible events that could affect an organization and estimating the probability and impact of each event
a) Simulation analysis
b) Scenario analysis
c) Sensitivity analysis

Answer 8

B) scenario analysis

Question 9

Which of the following is NOT true when using “Goal Seek” in Excel?* There are three fields in the Goal Seek dialogue box that need to be filled
A* Goal Seek can be used to calculate the breakeven value of an objective
B* Goal Seek will report an error if the cells are not correctly linked
C* Goal Seek requires the cell that is ““By changing cell” to be a number
D* Goal Seek requires the cell that is ““By changing cell” to be a formula

Answer 9

D* Goal Seek requires the cell that is ““By changing cell” to be a formula (it requires it to be a number)

Question 10

Your current projected profit is $1 million. You run a break-even analysis on Variable Z using a sensitivity dummy. At the break-even point for profit, you find that the sensitivity dummy is now 92.4%. Which of these is true?
A* As Z increases, profit increases
B* As Z increases, profit decreases
C* There is no relationship between Z and profit
D* Profit will be 0 when Z is equal to 92.4
E* None of these statements is true

Answer 10

A. As Z increases, profit increases

Question 11

Suppose we run sensitivity analysis on several variables and are only given the break-even % change for each of them. Which variable might have the most “impact” on our business?
A* The one with the highest positive break-even % change
B* The one with the highest magnitude break-even % change
C* The one with the lowest magnitude break-even % change
D* We do not have enough information to answer the question

Answer 11

C. The one with the lowest magnitude break-even % change

(If a variable has a small magnitude break-even change, that means it has a HIGHER elasticity* A small change in the variable has a bigger impact on profit and therefore, not as large a % change is needed for break-even)

Question 12

How many parameters in a uniform distribution?

Answer 12

2 (Minimum and Maximum)

Question 13

How many parameters in a normal distribution?

Answer 13

2 (Mean and Standard Deviation)

Question 14

Suppose there is an event with a 25% chance of happening. Which of these describes a simulation of the event happening?
A* RAND() >= 0.25
B* RAND() >= 25
C* RAND() <= 0.75
D* RANDBETWEEN(1,100) >= 25
E* RANDBETWEEN(1,100) <= 25

Answer 14

E. RANDBETWEEN(1,100)<=25 (there is a 25% chance of drawing a number less than 25)

Question 15

The RAND() function in Excel generates this type of distribution
A* Normal
B* Poisson
C* Uniform
D* Triangular
E* None of the above

Answer 15

C. Uniform distribution

Question 16

What is a uniform distribution?

Answer 16

All outcomes have the same probability of occurring. Equally likely.

Question 17

How many parameters in a triangular distribution?

Answer 17

3 (min, max and most likely)

Question 18

What is the purpose of a deterministic model?
a) To determine the sensitivity of our model to a particular variable
b) To determine if we are achieving maximum profit
c) To simulate our outcome across many values of a random variable
d) To enter a fixed value for our random input and see if the logic and calculations in the model are correct
e) To test different distributions in our simulation and determine which one is most appropriate

Answer 18

D

Question 19

Given the formula, =ROUND(RANDBETWEEN(100,400)/1000,0), which of these options is the most correct
* An integer between 10 and 400
* A number between 0.1 and 0.4
* 0
* Not enough information to answer the question

Answer 19

C. 0

Question 20

A discrete distribution is …

Answer 20

a distribution where occurrences that have countable or finite outcomes, like rolling a dice.

Question 21

A continuous distribution is…

Answer 21

one in which data can take any value within a specific range

Question 22

VLOOKUP(X, Table A, 3) describe X, Table A, and 3

Answer 22

=VLOOKUP(What you want to look up, where you want to look for it, the column number in the range containing the value to return, return an Approximate or Exact match – indicated as 1/TRUE, or 0/FALSE)

Question 23

What is the flaw of averages?
A.Using the average of a simulation’s input may lead to a wrong decision
b* The average of a simulation’s input and output will never be equal
c* Using an input’s average in a deterministic model to predict output could be misleading
d* It is better to use the median than the mean when summarizing a simulation output*
e Full summary statistics are needed after a simulation; the average is not enough

Answer 23

C

Question 24

You paste the formula =NORM.INV(RAND(), 150, 25) into 5,000 rows in Excel. Approximately, what percentage of the time would you expect these rows to contain a number less than 100?
* 50.0%
* 5.0%
* 2.5%
* 1.0%

Answer 24

2.5%

Question 25

What would be the best formula to use to simulate draws of Direct Labor cost per unit from a Normal distribution with a mean of $7 and a standard deviation that is 10% of the mean?
A* =NORM.INV(RAND(),7,0.7)
B* =ROUND(NORM.INV(RAND(),7,0.7),0)
C* =MAX(NORM.INV(RAND(),7,0.7),0)
D* =MAX(ROUND(NORM.INV(RAND(),7,0.7),0),0)
E*=ROUND(MAX(NORM.INV(RAND(),7,0.7),0),0)

Answer 25

C* =MAX(NORM.INV(RAND(),7,0.7),0)

Question 26

Suppose a random variable is distributed according to the Triangular distribution with a minimum of 0, most likely value of 50, and maximum of100.
What is the probability an observation will be greater than 50?
* 20%
* 50%
* 70%
* Need more information
* This is a symmetric Triangular distribution and so approximately 50% of the observations will be above the most likely value

Answer 26

50%

Question 27

You are given the following formula:
=MAX(ROUND(RANDBETWEEN(100,2000)/100,-1),10) What is the most likely answer?

Answer 27

10 or 20

Question 28

Value at Risk (VaR 5%) measures…

Answer 28

the value of the outcome variable in the 5th percentile

Question 29

Quantity ordered by Walton is in cell B10 & quantity supplier can provide is in cell B13. Supplier will charge $7.50 if they can supply the entire order; else, they will charge $7.25. Which formula to use to know the price that Walton would pay for calendars?
A* =IF(B10>=B13,7.50,7.25)
B* =IF(B13=B10,7.50,7.25)
C* =IF(B13>=B10,7.50,7.25)
D* =IF(B13>=B10,7.25,7.50)
E* =IF(B10<=B13,7.25,7.50)

Answer 29

C

Question 30

The quantity received by Walton is stored in cell C13 and the Demand(generated by a distribution) is stored in cell F13. The retail price is stored in cell B6. Which formula would you use for calculating the Revenue?

A. =IF(F13<=C13,C13B6,F13B6)
B* =IF(F13=C13,C13B6,F13B6)
C* =MAX(C13,F13)B6
D =IF(F13>=C13,C13B6,F13B6)
E* =MIN(C13,B6)*F13

Answer 30

D

Question 31

In the last class, for conducting simulation of Segment Size (which was defined by a Normal distribution with a mean of the base and a standard deviation of 20% of base), which formula would you use to multiply the base case of Segment Size?
A* =ROUND(MAX(NORM.INV(RAND(),1,0.2),0),0)
B* =MAX(NORM.INV(RAND(),1,20),0)
C* =MAX(NORM.INV(RAND(),1,0.2),0)
D* =ROUND(NORM.INV(RAND(),1,0.2),0)
E* =MAX(ROUND(NORM.INV(RAND(),1,0.2),0),0)

Answer 31

C

Question 32

Not related to Q1. For simulation, we attach simulation formula to sensitivity dummy for Segment Size. We then use a formula like NORM.INV(RAND(),1,0.5) to simulate from this distribution. Which of these is an accurate interpretation of the number 0.5
* The mean of segment size in our distribution is 0.5
* The standard deviation of segment size in our distribution is 0.5
* The mean of segment size in our distribution of 50% of the base case value
* The standard deviation of segment size in our distribution is 50% of the base case value

Answer 32

D