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):

Probabilities associated with the states of nature are 00.25 for a large crowd, 0.55 for an average 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).

Dwayne Whitten, president of Whitten Industries, is considering whether to build a manufacturing plant in north Texas. His decision is summarized in the following table:

a) The correct decision tree for Dwayne is shown in

nothing

b) To maximize the return, Dwayne's decision should be the following alternative: nothing

.

$nothing.

Dwayne Whitten, president of Whitten Industries, is considering whether to build a manufacturing plant in north Texas. His decision is summarized in the following table:

a) The correct decision tree for Dwayne is shown in

Figure

nothing

(all payoffs are in thousands).

b) To maximize the return, Dwayne's decision should be the following alternative: nothing

.

c) For Dwayne, the expected value of perfect information (EVPI) =

$nothing.

(enter your answer as a whole number).

Explanation / Answer

A)
Large = 0.25 * 20 + 0.55 * 10 + .2 * -2 = 10.1k
Avg = 0.25 * 15 + 0.55 * 12 + .2 * 6 = 11.55k
Small = 0.25 * 9 * 0.55 * 6 + .2 * 2 = 7.825 k

B) Average has the highest EMV of 11.55 k.

C)
If we have perfect information, we can always select the best decision. Therefore, if the crowd is large, we will have a large inventory. If the crowd is average, we will have an average inventory. If the crowd is small, we will have an average inventory.

EVPI = 0.25 * 20 + 0.55 * 12 + .2 * 6 = 12.8k

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