A bakery must decide how many pies to prepare for the upcoming weekend. The bakery has the option to make 50, 100, or 150 pies. Assume that demand for the pies can be 50, 100, or 150. Each pie costs $5 to make and sells for $7. Unsold pies are donated to a nearby charity center.
Assume that there is no opportunity cost for lost sales.
Assume that the bakery has obtained the following probability information regarding demand for the pies: P(50) = 0.3, P(100) = 0.5, and P(150) = 0.2.
a. which alternative should be chosen using the expected using the expected monetary value (EMV) criterion?
b. What is the expected value under certainty?
c. What is the excepted value under perfect information (EVPI)?