The Wilhelms Cola Company plans to market a new pineapple-flavoured cola this su

Question

The Wilhelms Cola Company plans to market a new pineapple-flavoured cola this summer. The decision is whether to package the cola in returnable or in nonreturnable bottles. Currently, the provincial legislature is considering eliminating nonreturnable bottles. Tybo Wilhelms, president of Wilhelms Cola Company, has discussed the problem with his government representative and established the probability to be 0.61 that nonreturnable bottles will be eliminated. The table below shows the estimated monthly profits (in thousands of dollars) if the cola is bottled in returnable versus nonreturnable bottles. Of course, if the law is passed and the decision is to bottle the cola in nonreturnable bottles, all profits would be from out-of-province sales.

Law Is Law Is Not   Alternative Passed ($ thousands), S1 Passed ($ thousands), S2   Returnable bottle 70 35   Nonreturnable bottle 30 50

Explanation / Answer

The expected value of perfect information is $5.85 thousand

Law Is Law Is Not   Alternative Passed ($ thousands), S1 Passed ($ thousands), S2 Expected Return   Returnable bottle 70 35                             56.35   Nonreturnable bottle 30 50                             37.80 Probability 0.61 0.39                               1.00 Best Decision 70 50                             56.35 (higher of 70 or 30) (higher of 35 or 50) (Higher of 56.35 or 37.80)

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