Deborah Hollwager, a concessionaire for the Amway Center in Orlando, has develop

Question

Deborah Hollwager, a concessionaire for the Amway Center in Orlando, has developed a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd) States of Nature (size of crowd) Large Alternatives Small Large Inventory Average Inventory Small Inventory 24,000 $12,000 $10,000 Average $12,000 $15,000 $6,000 - $1,000 $4,000 $5,000 Probabiities associated with the states of nature are 0.25 for a large crowd, 0.55 for anaverage crowd, and 0.20 for a small crowd a) The alternative that provides Deborah the greatest expected monetary value (EMV) is The EMV for this decision is $(enter your answer as a whole number). b) For Deborah, the expected value of perfect information ( EVPI) (enter your answer as a whole number).

Explanation / Answer

Ans:

a)

EMV(Large)=0.25*24000+0.55*12000-0.2*1000=12400

EMV(Average)=0.25*12000+0.55*15000+0.2*4000=12050

EMV(small)=0.25*10000+0.55*6000+0.20*5000=6800

Highest EMV is for Large inventory i.e. 12400

b)

Expected value with perfect information=0.25*24000+0.55*15000+0.20*5000=15250

EVPI=15250-12400=2850

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