The probabilitiesHard Rock Cafe's annual Rockiest
Clay Why bark, a soft-drink vendor at Hard Rock Cafe's annual Rockiest, 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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Dig
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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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$12,000
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-$2,000
|
|
Average stock
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$14,000
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$10,000
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$6,000
|
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Small stock
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$ 9,000
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$ 8,000
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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 Clay Why bark the greatest expected monetary value (HMV).
b) Compute the expected value of perfect information.