Director of legal services of ABC Company must decide whether to hire another fu
ID: 402772 • Letter: D
Question
Director of legal services of ABC Company must decide whether to hire another full-time lawyer or to hire part-time lawyers. Anticipated costs for the two options under three possible demand levels are given in the table below:
States of Nature
Alternatives
Low Demand
Medium Demand
High Demand
$2,400
$3,300
$4,400
$4,800
$3,400
$2,400
0.5
0.3
0.2
States of Nature
Alternatives
Low Demand
Medium Demand
High Demand
Hire full-time$2,400
$3,300
$4,400
Hire part-time$4,800
$3,400
$2,400
Probabilities0.5
0.3
0.2
Explanation / Answer
Best outcomes :- 4800*0.5 + 3400*0.3+ 4400* 0.2 = 4300
Max value of each given
1) 2400*0.5+ 3300* 0.3+4400*0.2 =3070
2) 4800*0.5 + 3400*0.3 + 2400 *0.2 = 3600
Best one is 3600
Expected value of perfect information = 4300-3600 =900
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