aternatves and various levels of demand at Robert Klassan\'s print shop bolwing
ID: 422159 • Letter: A
Question
aternatves and various levels of demand at Robert Klassan's print shop bolwing po ot table proides protits taced on vanous possble dedision Demand High Altemative 2 $4,000 $38,000 Altemative 3 $2,500 $50,000 innanoflowden ad ? 0 40, whereas he probabity of high demand s060 The atetve hat provides Robert the greatest expeded monetary value (EMV) S E d eter your anawer as a whole number) h e e port nlomaton Ewrl)enter your anouer as e whole number) he eted wale st pered tomuton EP) for Roberte enter your answer as a whole number)Explanation / Answer
EMV for each of the alternatives can be given by
Alternative 1
8000*0.4 + 36000*0.6 = 3200 + 21600 = 24800
Alternative 2
4000*0.4 + 38000*0.6 = 1600 + 22800 = 24400
Alternative 3
-2500*0.4 + 50000*0.6 = -1000 + 30000 = 29000
a) The alternative that provides Robert with greatest expected monetary value is Alternative 3
The EMV of that decision is $29,000
b) In order to calculate the expected value with the perfect information we choose the best alternative for each probability. So we have,
8000*0.4 + 50000*0.6 = 3200 + 30000 = 33200
This is the EVwPI
c) Now that we have EVwPI, in order to calculate EVPI or expected value of the perfect information we need to subtract max EMV from EVwPI. Our maximum EMV is 29000 and EVwPI is 33200 so,
EVPI = 33200-29000 = 4200
This is the expected value of perfect information
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