. A concessionaire for the local ballpark has developed a table of conditional v

Question

. A concessionaire for the local ballpark has developed a table of conditional values for the various alternatives (stocking decisions) and states of nature (size of crowd). Stocking Decision Large Crowd ($) Average Crowd ($) Small Crowd ($) Large Inventory $15,000 $10,000 $5,000 Average Inventory $12,500 $1,000 $5,500 Small Inventory $8,000 $3,000 $1,000 You may use Excel QM or QM for Windows: If the probabilities associated with the states of nature are 0.3 for a large crowd, 0.3 for an average crowd, and 0.4 for a small crowd, determine: 1. The alternative that provides the greatest expected monetary value (EMV). Answer: Explanation (including any calculations or software output): 2. The expected value of perfect information (EVPI). Answer: Explanation (including a

Explanation / Answer

1.

Large stock = 15000 * 0.30 + 10000 * 0.30 + 5000 * 0.40

= $ 9500

Average stock = 12500 * 0.30 + 1000 * 0.30 + 5500 * 0.40

= $ 6250

Small stock = 8000 * 0.30 + 3000 * 0.30 + 1000 * 0.40

= $ 3700

Maximum (expected monetary value ) EMV = $ 9,500 [ Large Stock ]

2.

Expected perfect information = 15000 * 0.30 + 10000 * 0.30 + 5500 * 0.40

= $ 9700

The expected value of perfect information (EVPI) = Expected perfect information - Expected monetary value

= 9700 - 9500

= $ 200

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