Problem:
Clay Whybark, a soft-drink 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)
States of nature (demand)
Alternatives 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 bid gemand, 0.5 for an average demand, and 0.2 for a small demand.
Q1) Determine the alternative that provides Clay Shybark the greatest expected monetary value (EMV)
Q2) Compute the expected value of perfect information (EVPI)