B. Compute the expected value of perfect formation. in Baltimore City. He has ju

Question

B. Compute the expected value of perfect formation. in Baltimore City. He has just acquired a textile company of one of ts plant located in West Virgnia,The investor tsee market with little foreign competition; (2) maintain the status now. if one of the first two alternatives is chosen, the plant wll t the end of the year. The amount of profit that could be earned by selling the plant in s a corporate investor C and the plant and produce ehtweigh, durable masteral tor aler to the miltary, a little foreign aung production of textile goods that are subject to heavy foreign oInselthe plant s yeardepends on foreign market conditions, Iincluding the status of a trade embargo bil in on The folowing payoff table describes this decision situation State of Nature Unfavorable Foreign Competition $500,000 150,000 320,000 Favorable Foreign $800,000 Mantan tt qu 1,300,000 20,000 that t s now possble to estimate a probability omptionconditions will exist and a probability probability of 0.70 that favorable foreien of 0.30 that unfavorable Asue thet t s now possible to estimatea Determine the best decision by using the e cman" tapeted madperfect nformation.

Explanation / Answer

Ans:

a)

As,maxiimum EMV i.e.

1300000*0.7-150000*0.3=865000

is given by maintaining status quo.

So,choose maintain status quo.

b)

Expected value with perfect information=1300000*0.7+500000*0.3=10,60000

Expected value without perfect information=maximum EMV=865000

Expected value of perfect information=10,60000-865000=195000

Fav. Unfav. EMV Expand 800000 500000 710000 maintain 1300000 -150000 865000 sell 320000 320000 320000

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.