Question:

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 420 430 Medium 480 370 Large 810 -250 Probability 0.3 0.7 Part A 1. What is the best expected payoff and the corresponding decision using the Expected Monetary Value (EMV) approach? $(ooo) Select an answer v 2. What is the expected value of perfect information (EVPI)? $(ooo) Part B Lakeshore can hire a labour researcher for a $11,900 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 = 0.2 Probability of no strike given a favorable report = 0.4 Probability of a strike given an unfavorable report = 0.28 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 (EVw51) provided by the researcher? 4. How much should Lakeshore pay the researcher, at most? S 5. Based on the EVSI, should Lakeshore pay $11,900 for the sample information? Select an answer V 6. What is the efficiency of the sample information? Round % to 1 decimal place