A concessionaire for the local ballpark has developed a table of conditional val
ID: 2406596 • Letter: A
Question
A concessionaire for the local ballpark has developed a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd).
Large
Average
Small
Probability
.3
.5
.2
Alternative 1
9,000
12,000
-2,000
Alternative 2
22,000
6,000
6,000
Alternative 3
15,000
12,000
5,000
If the probabilities associated with the states of nature are 0.30 for a large crowd, 0.50 for an average crowd, and 0.20 for a small crowd, the concessionaire would choose [ Select ] ["Alternative 3", "Alternative 2", "Alternative 1"] using expected monetary value (EMV).
Large
Average
Small
Probability
.3
.5
.2
Alternative 1
9,000
12,000
-2,000
Alternative 2
22,000
6,000
6,000
Alternative 3
15,000
12,000
5,000
Explanation / Answer
Answer
Alternative 1 = 9000 * 0.30 + 12000 * 0.50 + -2000 * 0.20
= 8300
Alternative 2 = 22000 * 0.30 + 6000 * 0.50 + 6000 * 0.20
= 10800
Alternative3 = 15000 * 0.30 + 12000 * 0.50 + 5000 * 0.20
= 11500
maximum EMV = 11500
best column = 22000 12000 6000
EPPI = 22000 *0.30 + 12000 * 0.50 + 6000 * 0.20
= 13800
the expected value of perfect information EVPI = EPPI - EMV
= 13800 - 11500
= 2300
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