1) b) The expected value of perfect information (EVPI) for Andrew Thomas = (ente

Question

1)

b) The expected value of perfect information (EVPI) for Andrew Thomas =   (enter your answer as a whole number)

2)

b) The expected value with perfect information (EVwPI) =$____ (enter your answer as a whole number).

c) The expected value of perfect information (EVPI) for Robert = $_____ (enter your answer as a whole number).

Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd) States of Nature (demand) Alternatives Large Stoclk Average Stock Small Stock Average $14,000 $9,000 $8,100 Small - $2,500 $6,000 $4,000 $18,000 14,000 $9,000 The probabilities associated with the states of nature are 0.25 for a big demand, 0.55 for an average demand, and 0.20 for a small demand. a) The alternative that provides Andrew Thomas the greatest expected monetary value (EMV) is Large Stock The EMV of this decision is s» (enter your answer as a whole number)

Explanation / Answer

Ans:

1)a)

Maximum EMV is for large stock.

EMV(large stock)=0.25*18000+0.55*14000-0.20*2500=11700

b)expected value with perfect information (EVwPI) =0.25*18000+0.55*14000+0.20*6000=13400

(choose maximum of respective scenarios)

EVPI=13400-11700=1700

2)

a)EMV is high for alternative 3 i.e. 0.45*-2000+0.55*52000=27700

b)EVwPI=0.45*8000+0.55*52000=32200

c)EVPI=32200-27700=4500

Big Average Small EMV Large 18000 14000 -2500 11700 Average 14000 9000 6000 9650 Small 9000 8100 4000 7505

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