Question
A clothing store orders different styles of suits without knowing which designer will be popular in a season. There are two designers, X and Y.
A clothing store orders different styles of suits without knowing which designer will be popular in a season. There are two designers, X and Y. The store owner knows that there is a 40% chance that designer X will be popular in a season and a 60% chance that designer Y will be popular in a season. Suppose the store owner will order only two suits and she can order both suits from one designer or one suit from each designer. Profit is $200 per suit on suits made by a popular designer and $100 per suit on suits made by an unpopular designer Let utility from profit, , be U() = .
a) Suppose, in a season, both designers cannot be unpopular and also if one designer is popular, then the other designer is unpopular. What is the maximum amount that the store owner is willing to pay to know (for sure) which designer will be popular before she places her order?
b) Suppose, in a season, both designers can be popular or both unpopular or one designer is unpopular while the other designer is popular. If the store owner can choose onlyoneof the designers to find out if that designer will be popular, what isthe equationthat determines the maximum amount that she is willing to pay for this informationbeforeshe places her order?
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