Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternative (stocking decision) and states of nature (size of crowd): States of Nature (demand) Big Average $22,000 $12,000 $14,000 $11,000 $9,600 $8,000 The probabilities associated with the states of nature are 0.30 for a big demand, 0.50 for an average demand, and 0.20 for a small demand a) The alternative that provides Andrew Thomas the greatest expected monetary value (EMV) is Alternatives Large Stock Average Stock Small Stock Small -$2,000 $5,500 $4,000 The EMV of this decision is $(enter your answer as a whole number). b) The expected value of perfect information (EVPI) for Andrew Thomas = $(enter your answer as a whole number).
Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternative (stocking decision) and states of nature (size of crowd): States of Nature (demand) Big Average $22,000 $12,000 $14,000 $11,000 $9,600 $8,000 The probabilities associated with the states of nature are 0.30 for a big demand, 0.50 for an average demand, and 0.20 for a small demand a) The alternative that provides Andrew Thomas the greatest expected monetary value (EMV) is Alternatives Large Stock Average Stock Small Stock Small -$2,000 $5,500 $4,000 The EMV of this decision is $(enter your answer as a whole number). b) The expected value of perfect information (EVPI) for Andrew Thomas = $(enter your answer as a whole number).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternative
(stocking decision) and states of nature (size of crowd):
States of Nature (demand)
Big
Average
Alternatives
Large Stock
Average Stock
$22,000
$12,000
$14,000
$11,000
Small Stock
$9,600
$8,000
The probabilities associated with the states of nature are 0.30 for a big demand, 0.50 for an average demand, and 0.20 for a small demand.
a) The alternative that provides Andrew Thomas the greatest expected monetary value (EMV) is
The EMV of this decision is $
(enter your answer as a whole number).
b)
expected value of perfect information (EVPI) for Andrew Thomas = $(enter your answer as a whole number)
Small
-$2,000
$5,500
$4,000
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