The appliance dealer should decide how many (if any) new microwave ovens to order for next month. Ovens cost $220 and sell for $300. As oven company is coming out with new product line in 2 months, any ovens not sold next month will have to be sold at dealer's half price clearance sale. In addition, appliance dealer feels he suffers loss of $25 for every oven demanded when he is out of stock. On basis of past months' sales data, dealer evaluates probabilities of monthly demand (D) for 0, 1, 2, or 3 ovens to be .3, .4, .2, and .1, respectively.
Dealer is thinking of performing the telephone survey on customers' attitudes towards microwave ovens. Results of survey will either be favorable (F), unfavorable (U) or no opinion (N). Dealer's probability evaluates for survey results based on number of units demanded are:
P(F | D = 0) = .1
P(F | D = 2) .3
P(U | D = 0) = .8
P(U | D = 2) = .1
P(F | D = 1) = .2
P(F | D = 3) .9
P(U | D = 1) = .3
P(U | D = 3) = .1
i) Determine dealer's optimal decision without performing survey?
ii) Determine the EVPI?
iii) Based on survey results find optimal decision strategy for dealer?
iv) Compute maximum amount he must pay for survey?