Ques 1.

The owner of the Long Branch Computer Hardware Company must decide among building 100 servers, building 5000 hard drives, or leasing all their equipment to another company. The profit that will result from each alternative will be determined by whether material costs remain stable, increase moderately, or increase significantly. The specialists calculated the likelihood for each possible level of material costs. In the payoff table below the estimated profit/losses are given in $thousands. Material Costs Moderate Increase 1950 500 2400 Significant Stable Increase Servers Hard Drives 1810 1050 500 Leasing Probability of State 0.5 0 of Nature a. Compute the expected monetary value for each decision: EMV(Servers) = EMV(Hard Drives) = EMV (Leasing) = b. Using Expected Monetary Value criterion, select the best decision. Select an answer v c. Find the expected value with perfect information. EVWPI = d. Determine the expected value of perfect information. EVPI = e. Please interpret EVPI. O EVPI is the average amount the company would pay for additional information 0 EVPI is the minimum amount the company would pay for additional information 0 EVPI is the usual amount the company would pay for additional information 0 EVPI is the maximum amount the company would pay for additional information The owner of the Humber Lakeshore Transport Company must decide among manufacturing 10 new transport trucks, manufacturing 20,000 new electric scooters, or leasing all their manufacturing equipment to another company. The profit that will result from each alternative will be determined by whether material costs remain stable, increase moderately, or increase significantly. The specialists calculated the likelihood for each possible level of material costs. In the payoff table below the estimated profit/losses are given in $thousands. Material Costs Moderate Significant Increase Increase 810 930 1040 2250 700 -2300 1820 1050 160 Probability of State of O 3 Nature . (a) Construct Opportunity Loss (Regret) Table. Material Costs Stable Moderate Increase Significant Increase 05 O -_ Probability of State (b) Compute the expected opportunity loss value for each decision. EOL(Transport) = l ' EOL(Scooters) = ' ' EOL(Leasing) = l l (c) Select the best decision using EOL criterion. 0 Decision: Scooters 0 Decision: Transport 0 Decision: Leasing (d) Which of the following formulae is correct? 0 EVPI = min EOL O EVPI = max EMV O EVPI = min EMV O EVPI = max EOL