Question

The below payoff table gives profits from several decision alternatives and two different levels of demand. Decision Alternative 1 Alternative 2 Alternative 3 Demand Low High $10,000 $36,000 $6,000 $42,000 -$2,000 $52,000 The probability of low demand is 0.35, whereas the probability of high demand is 0.65. a) The alternative that provides the greatest expected monetary value (EMV) is The EMV for this decision is $(enter your answer as a whole number). b) The expected value with perfect information (EVWPI) - $ (enter your answer as a whole number), c) The expected value of perfect information (EVPI) for Robert = $(enter your answer as a whole number).

Answer 1

Given

Alternative	Low	High
Alternative 1	$10,000	$36,000
Alternative 2	$6,000	$42,000
Alternative 3	-$2,000	$52,000
Probability	0.35	0.65

EV will be given as= value of its cell *probability for alternative

EV table	Low	High	Expected vale, EV= sum of EV
Alternative 1	$3500	$23,400.0	$26,900
Alternative 2	$2100	$27,300	$29,400
Alternative 3	-$700	$33,800	$33,100

(a) Based on the above calculations, the alternative that provides the greatest expected monetary value (EMV) is Alternative 3.

(b) The EMV for this decision is $33,100

EVwoPI=EMV		$33,100
EVwPI= best possible outcome	0.35*10000 + 0.65*52000	$37,300
EVPI= |EVwPI-EVwoPI|=	$37,300 - $33,100	$4,200

(c) Expected value with perfect information EVwPI = $37,300

(d) Expected value of perfect information for Robert EVPI = $4,200

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