Question
George Goleb is considering the purchase of two types of industrial robots. The Rob1 is a large robot capable of performing a variety of tasks,
George Goleb is considering the purchase of two types of industrial robots. The Rob1 is a large robot capable of performing a variety of tasks, including welding and painting. The Rob2 is a smaller and slower robot, but it has all the capabilities of Rob1. The robots will be used to perform a variety of repair operations on large industrial equipment. Of course, George can always do nothing and not buy any robots. The market for the repair operation could be either favorable or unfavorable. George expects that in a favorable market, he would earn $50,000 with Rob1 and $30,000 with Rob2. In an unfavorable market, he would lose $40,000 with Rob1 and $20,000 with Rob2. Without gathering further information, George estimates that there is a 60% chance of a favorable market.
George is also considering the possibility of conducting a survey on the market potential for industrial equipment repair using robots. The cost of the survey is $5,000. Historical data shows that the survey predicts a favorable market 62% of the time. If the survey predicts a favorable market, the actual market turns out to be favorable 87.1% of the time. On the other hand, if the survey predicts an unfavorable market, the actual market turns out to be unfavorable 84.2% of the time. Even after conducting a survey, George would like to keep the option of not purchasing any robots open. What is the expected value of Georges optimal strategy?
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