A manager needs to hire short-term employees to meet production demands. The man
ID: 2406561 • Letter: A
Question
A manager needs to hire short-term employees to meet production demands. The manager would like to hire one of three possible short-term workers. Ten hours are demanded with 50% probability, 20 hours are demanded with 30% probability, and 30 hours are demanded with 20% probability. The table below represents the alternatives and possible states of nature.
States of Nature
(Worker hours demanded)
Alternatives
10 hr total pay
20 hr total pay
30 hr total pay
Worker 1
$1,000
$1,800
$2,400
Worker 2
$900
$1,800
$2,500
Worker 3
$950
$1,750
$2,550
What is the expected value of perfect information? [a]
Do not use $.
States of Nature
(Worker hours demanded)
Alternatives
10 hr total pay
20 hr total pay
30 hr total pay
Worker 1
$1,000
$1,800
$2,400
Worker 2
$900
$1,800
$2,500
Worker 3
$950
$1,750
$2,550
Explanation / Answer
Expected Value of Perfect Information = Expected Monetary Value - Expected MInimum Perfect Information
Expected Value of Perfect Information = 1490 - 0.5 * 900 - 0.3 * 1750 - 0.2 * 2400
Expected Value of Perfect Information = 35
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