Question 1

Shahrukh is considering the possibility of opening a small dress shop on KL Avenue, a few blocks from Kuala Lumpur University. She has located an excellent mall that attracts students. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a dress shop can be good, average, or bad. The probabilities for these three possibilities are 0.2 for a good market, 0.5 for an average market, and 0.3 for a bad market. The net profit or loss for the medium-sized and small shops for the various market conditions are given in the following table. Building no shop at all yields no loss and no gain.

ALTERNATIVE	GOOD MARKET ($)	AVERAGE MARKET ($)	BAD MARKET ($)
Small shop	75,000	25,000	-40,000
Medium-sized shop	100,000	35,000	-60,000
No shop	0	0	0

a) Based on the scenario, what do you recommend?

b) Calculate the EVPI.

c) Develop the opportunity loss table for this situation. What decisions would be made using the minimax regret criterion and the minimum EOL criterion?