Problem -
Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):
|
Alternatives
|
States of Natures (Demand)
|
|
Big
|
Average
|
Small
|
|
Large stock
|
$22,000
|
$12,000
|
-$2,000
|
|
Average stock
|
$14,000
|
$10,000
|
$6,000
|
|
Small stock
|
$ 9,000
|
$ 8,000
|
$4,000
|
The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.
a) Determine the alternative that provides Andrew the greatest expected monetary value (EMV).
b) Compute the expected value of perfect information (EVPI).