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A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision
A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capacity for next year. The capacity alternatives are Do Nothing, Expand, and Subcontract. Estimated profits (in thousands) under each of the two possible states of nature (Low Demand, High Demand) are shown in the table below. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probability of low demand as 31%, with high demand accounting for the remaining probability. What is the expected value OF perfect information (in thousands)
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