Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: Demand Staffing Options High Medium Low Own staff 650 600 500 Outside vendor 900 650 350 Combination 800 650 500 a. If the demand probabilities are 0.3, 0.5, and 0.2, which decision alternative will minimize the expected cost of the data processing operation? Own staff What is the expected annual cost associated with that recommendation? If required, round your answer to the nearest thousand of dollars. Expected annual cost = $ 595,000 X b. Construct a risk profile for the optimal decision in part (a). Cost Probability 650 0.3 600 0.5 500 0.2 1.0 A graphical representation of the risk profile is also shown: 0.5 0.4 0.3- Probability 0.2- 0.1- 0 300 600 900 1200 Cost (in thousands of dollars) What is the probability of the cost exceeding $625,000? If required, round your answer to two decimal places. Probability = 0.50 XProblem 13-27 (Algorithmic) In a certain state lottery, a lottery ticket costs $4. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies: State of Nature Win Lose Decision Alternatives 52 Purchase Lottery Ticket, d1 550000 -4 Do Not Purchase Lottery Ticket, d2 0 O a. A realistic estimate of the chances of winning is 1 in 220,000. Use the expected value approach to recommend a decision. If required, round your answer to two decimal places. If the amount is zero enter "0". Recommended decision: Do Not Purchase Lottery Ticket Expected Value = $ b. If a particular decision maker assigns an indifference probability of 0.00001 to the $0 payoff. Would this individual purchase a lottery ticket? Decision: No, Do Not Purchase Lottery Ticket Use expected utility to justify your answer. If required, round your answer to five decimal places. Expected Utility = The input in the box below will not be graded, but may be reviewed and considered by your instructor