Discuss the below:
The Thomas manufacturing company has $100,000 available to invest Doctor Thomas the president and CEO of the company, would like to choose one of the following three alternatives:
Q1. Expand her production
Q2. Invest the money in stocks
Q3. Purchase a certificate of deposit from the bank.
The unknown is whether the economy will continue at a high level or there will be a recession. She estimates the likelihood of a recesson at 0.20 whethere there is a recession or not, the certificate of deposit will result in a gain of 6 percent. if there is a recession she predicts 10 percent loss if she expands her production and a 5 percent loss if she invests in stocks. If there is not a recession, an expansion of production will result in a 15 percent gain and stock investment will produce a 12 percent gain.
a) What decision should she make if she uses the expected monetary value criterion?
b) What is the expected value of Perfect information?