1. The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high. NUMBER OF BEAUTICIANS DEMAND LOW MEDIUM HIGH One 50 75 100 Two 0 100 100 Three (100 ) 70 300 If she feels the chances of low, medium, and high demand are 50 percent, 20 percent, and 30 percent respectively, what is her expected value of perfect information?
2. The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: SIZE OF OUTLET DEMAND LOW HIGH Small $ 1,000 1,000 Medium 500 2,500 Large 0 3,000 If she feels there is a 30 percent chance that demand will be high, what is her expected payoff under certainty?