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Lakeshore Manufacturing must decide whether to set their production capacity next quarter to small, medium or large while hoping that a looming employee strike will
Lakeshore Manufacturing must decide whether to set their production capacity next quarter to small, medium or large while hoping that a looming employee strike will not actually materialize. Their projected annual profits $('000) depend on the event of the strike as follows: No strike Strike Small 410 430 Medium 460 360 Large 690 250 Probability 0.4 0.6 Part A 1. What is the best expected payoff and the corresponding decision using the Expected Monetary Value (EMV) approach? $(000) Small 2. What is the expected value of perfect information (EVPI)? $('000) Part B Lakeshore can hire a labour researcher for a $11,300 to obtain further information on the possibility of a strike. The researcher's report will either be favourable or unfavourable. The probability estimates are: Probability of an unfavorable report = 0.3 Probability of no strike given a favorable report = 0.56 Probability of a strike given an unfavorable report = 0.38 Report answers to the questions below (#1 to #4) in dollars (not in $'000 as above). 1. If the researcher gives a favourable report, what is the expected value of the optimal decision? 2. If the researcher gives an unfavourable report, what is the expected value of the optimal decision? $ 3. What is the expected value with sample information (EVw$1) provided by the researcher? $ 4. How much should Lakeshore pay the researcher, at most? 5. Based on the EVSI, should Lakeshore pay $11,300 for the sample information? Select an answer v 6. What is the efficiency of the sample information? Round % to 1 decimal place
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