INFM 718A / LBSC 705 Information For Decision Making

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INFM 718A / LBSC 705 Information For Decision
Making

• Lecture 1

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Overview

• Introduction
• Aspects of decision making
• Math refresher
• Decision making process
• Modeling for decision making
• Break-even analysis

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Questions

• What information did you need to make the
  decision?
• How did you define and compare the options?
• Are you sure your choice is the best choice?
• Are you sure your choice will stay the best
  choice? For how long?

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Questions

• What else would you like to have known before
  making the decision?
• How did you feel while making the decision?
• How did you feel after making the decision?
• How do you feel now about your decision?

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Decision-Making and Problem-Solving

• Define the problem
• Identify the alternatives
• Determine the criteria
• Evaluate the alternatives
• Choose an alternative
• Implement the decision
• Evaluate the results

Decision Making
Problem Solving
Decision
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Math Refresher

• Coordinate System, Quadrants
• Graphing Linear Equations
• Slope of a Line
• Solving Linear Equation Systems
• Graphing
• Substituting
• Addition

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Coordinate System
(x, y)
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Quadrants
(x, y)
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Graphing Linear Equations

• Example x 2y 6
• Assign values to y and calculate x, based on the
  given y value.
• y 0 ? x 6 (6, 0)
• y 1 ? x 4 (4, 1)
• y 2 ? x 2 (2, 2)
• y 3 ? x 0 (0, 3)
• Plot these points on the coordinate system

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Graphing Linear Equations

• Example x 2y 6

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Examples

• Plot 2x - y 8
• Plot x 2y - 10

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Slope of a Line

• Pick two points, and find the changes in x and y.
• Use the formula to calculate slope.

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Slope of a Line

• Example x 2y 6
• Points (6, 0) and (4, 1)
• change in x 6 - 4 2
• change in y 0 - 1 -1
• slope -1/2
• y mx b y -1/2 x 3

slope
y-intercept
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y-Intercept

• Example x 2y 6

y-intercept
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Examples

• What is the slope of 2x - y 8?
• What is the y-intercept?

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Examples

• What is the equation for this line

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Solving Linear Equation Systems

• Graphing
• Substituting
• Addition
• Example
• 3x 2y 16
• x - y 2

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Graphing
3x 2y 16
Solution (4, 2)
x - y 2
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Substituting

• 3x 2y 16
• x - y 2
• x y2
• 3 (y2) 2y 16
• 3y 6 2y 16
• 5y 16 - 6 10
• y 10/5 2
• x y 2 2 2 4

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Addition

• 3x 2y 16
• x - y 2 (multiply by 2)
• 3x 2y 16
• 2x - 2y 4 (add two lines)
• 5x 20
• x 4
• y 2

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Modeling for Decision-Making
Uncontrollable Inputs (Constraints, etc.)
Controllable Inputs (Decision Variables)
Mathematical Model
Output (Projected Results)
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Break-even Analysis
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Break-even Analysis

• a Revenue (income) per unit
• B Total fixed costs
• c Variable cost per unit
• Q number of units produced at BE point

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Break-even Analysis

• P Total revenue at BE point
• K Total costs (fixed variable) at BE point

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Break-even Analysis
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Break-even Analysis

• a Revenue (income) per unit
• B Total fixed costs
• c Variable cost per unit
• Q number of units produced at BE point

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Goes Beyond Sales

• Alex has determined that his car delivers 24
  miles per gallon. With a 100 tune up, the car
  can deliver 30 miles per gallon. The price of gas
  is 3/gal. Assume the gas price steady, and the
  benefits of the tune up permanent. When will Alex
  reach break-even, driving at a rate of 20 miles
  per day?

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Goes Beyond Sales

• 4000 miles
• 200 days
• .5 savings per day
• 82.5 net savings at the end of year one
• 182.5 savings per year thereon