Dollar is an expected-value maximizer


Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollars store on Grove Street for $120,000. Dollar is an expected-value maximizer. Dollar has determined probability estimates of the store"s future profitability, based on economic outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4. A. b. c. Should Dollar sell the store on Grove Street? What is the EVPI? Dollar can have an economic forecast performed. The forecast costs $10,000, and indicates either G = Good business or B = Bad business conditions with equal probability (that is, probability 0.5). Conditional probabilities of the indicators conditional on future profitability are P(G80,000) = .1; P(G 100,000) = .2; P(G120,000) = .6; P(G140,000) = .3. Should Dollar purchase that forecast?

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Basic Statistics: Dollar is an expected-value maximizer
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