3. For the problem given in Question 2, the probabilities are given by P(high de
ID: 3229678 • Letter: 3
Question
3. For the problem given in Question 2, the probabilities are given by P(high demand) = 0.2, P(medium demand) = 0.5, and P(low demand) = 0.3.
a. Compute the expected value for each decision and select the best one.
b. Compute the expected regret value for each decision and select the best one.
c. Calculate and interpret the expected value of perfect information.
HERE IS PROBLEM 2 FOR REFERENCE:
A company is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. There are three levels of demand under consideration: high, medium, and low. The annual profit associated with each option (in $1,000) for each level of demand is given below:
Demand Level
Staffing Options High Medium Low
Own staff 1000 800 450
Outside vendor 800 700 550
Combination 900 750 600
Explanation / Answer
a)
Demand Level Staffing Options High Medium Low Own staff 1000 800 450 735 Outside vendor 800 700 550 675 Combination 900 750 600 735 0.2 0.5 0.3 Hence, either choosing own staff or a combination would be better alternative b) Demand Level Staffing Options High Medium Low Own staff 0 (1000-1000) 0 (800-800) 150 (600-450) 150 Outside vendor 200 (1000-800) 100 (800-700) 50 (600-550) 350 Combination 100 (1000-900) 50 (800-750) 0 (600-600) 150 The own staff or a combination have less regret than outside vendor. Hence, either choosing own staff or a combination would be better alternative c) EVPI=EVwPI-EVwoPI (Maximum EMV) EVwPI=1000(0.2)+800(0.5)+600(0.3)=200+400+180=780 EVwoPI=735 EVPI=780-735=45Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.