a) EMV= Low Demand*0.4+ High Demand*0.6 Alternative 1 = 10000*0.4+30000*0.6 = 22

Question

a) EMV= Low Demand*0.4+ High Demand*0.6

Alternative 1 = 10000*0.4+30000*0.6 = 22000

Alternative 2 = 5000*0.4+40000*0.6 = 26000

Alternative 2 = -2000*0.4+50000*0.6 = 29200

Highest possible Expected Monetary value is in Alternative 3 i.e; $29200---> Max EMV

b) For EVwPI we choose maximum value for each type of demand

So for low demand maximum value comes from alternative 1 = $10000

And for High demand maximum value comes from alternative 3 = $50000

Now EVwPI = 10000*0.4+50000*0.6=$34000

c) EVPI =EVwPI - EVwoPI

Now EVwoPI = Max EMV = 29200

EVwPI=34000

So EVPI=34000-29200=$4800

Explanation / Answer

The following payoff table provides profits based on various possible decision altermatives and various levels of demand at Robert Klassan's print shop: DEMAND LOW Alternative 1 $10,000 Alternative 25,000 Alternative 3 -$2.000 $50.000 HIGH 30,000 40,000 The probability of low demand is 0.4, whereas the probability of high demand is 0.6. a) What is the highest possible expected monetary value? b) What is the expected value with perfect information (EVwP)? c) Calculate the expected value of perfect information for this situation?

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