Assignment:
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):
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STATES Of NATURE (DEMAND)
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ALTERNATIVES
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BIG
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AVERAGE '
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SMALL
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Large stock
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$22,000
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512,000
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-$2,000
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Average stock
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$14,000
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S10,000
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56,000
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Small stock
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S 9,000
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S 13,000
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$4,000
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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).
Provide complete and step by step solution for the question and show calculations and use formulas.