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Cliff Inc. must make a decision on their capacity in anticipation of a big demand next year. The company has an option to: 1. buy
Cliff Inc. must make a decision on their capacity in anticipation of a big demand next year. The company has an option to: 1. buy 1 machine 2. buy 2 machines 3. buy 3 machines Estimated profits based on the different scenarios are shown in the table below. The profits for each alternative are a function of whether their proposal for a government contract is accepted or not. Alternative Proposal rejected Proposal accepted $10,000 Buy 1 machine $5,000 Buy 2 machines Buy 3 machines $30,000 $40,000 $4,000 $2,000 Refer to the problem of Cliff Inc. above. Assume that based on historical negotiations with the government, the president of the company believes that there is a 65% chance that the proposal will be accepted. What is the expected value under certainty? (EVwPI) Refer to the problem of Cliff Inc. above. Assume that based on historical negotiations with the government, the president of the company believes that there is a 65% chance that the proposal will be accepted. What is the expected value of perfect information? (EVPI) Cliff Inc. must make a decision on their capacity in anticipation of a big demand next year. The company has an option to: 1. buy 1 machine 2. buy 2 machines 3. buy 3 machines Estimated profits based on the different scenarios are shown in the table below. The profits for each alternative are a function of whether their proposal for a government contract is accepted or not. Alternative Proposal rejected Proposal accepted $10,000 Buy 1 machine $5,000 Buy 2 machines Buy 3 machines $30,000 $40,000 $4,000 $2,000 Refer to the problem of Cliff Inc. above. Assume that based on historical negotiations with the government, the president of the company believes that there is a 65% chance that the proposal will be accepted. What is the expected value under certainty? (EVwPI) Refer to the problem of Cliff Inc. above. Assume that based on historical negotiations with the government, the president of the company believes that there is a 65% chance that the proposal will be accepted. What is the expected value of perfect information? (EVPI)
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