Quiz: Module 2 B (Module A Quiz) QUIZ Time Remaining: 01:18:08 Submit Quiz This

Question

Quiz: Module 2 B (Module A Quiz) QUIZ Time Remaining: 01:18:08 Submit Quiz This Question: 15 pts 8 of 13 (0 complete) This Quiz: 70 pts possible The following payoff table provides profts based on various possible decision alternatives and various levels of demand at Robert Klassan's print shop: Demand Decision Low High Altemative 1 $10,000 $30,000 Alternative 2 $4,000 $38,000 Altenative 3 $1.500 $50.000 The probability of low demand is 0.45, whereas the probability of high demand is 0.55. a) The alternative that provides Robert the greatest expected monetary value (EMV) is The EMV for this decision is (enter your answer as a whole number. b) The expected value with perfect information (EVWp-s(enter your answer as a whole number) o) The expected value of perfect information (EVPI) for Robert(enter your answer as a whole number), Enter your answer in each of the answer boxes.

Explanation / Answer

A.

EMV of alternative 1 = .45*10000 + .55*30000 = $21000

EMV of alternative 2 = .45*4000 + .55*38000 = $22700

EMV of alternative 3 = .45*(-1500) + .55*50000 = $26825

Here, the greatest EMV is of alternative 3.

So, alternative that provides highest EMV is alternative 3.

EMV of this decision is $26825.

B.

EVwPI = .45*10000 + .55*50000 = $32000

C.

EVPI = EVwPI – EMV

EVPI = 32000-26825

EVPI = $5175

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