T.S. Amer’s Ski Shop in Nevada has a 100-day season. T.S. has established the probability of various store traffic, based on historical records of skiing conditions, as indicated in the table to the right. T.S. has four merchandising plans, each focusing on a popular name brand. Each plan yields a daily net profit as noted in the table. He also has a meteorologist friend who, for a small fee, will accurately tell tomorrow’s weather so T.S. can implement one of his four merchandising plans.

a) What is the expected monetary value (EMV) under risk?

b) What is the expected value with perfect information

(EVwPI)?

c) What is the expected value of perfect information (EVPI)?

Transcribed Image Text:

TRAFFIC IN STORE BECAUSE OF SKI CONDITIONS (STATES OF NATURE) DECISION ALTERNATIVES (MERCHANDISING PLAN FOCUSING ON:) 2 3 4 Patagonia $40 92 20 48 North Face 50 84 10 52 Cloud Veil 35 80 40 64 Columbia 45 72 10 60 60 Probabilities .20 .25 .30 .25