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Suppose a car dealer offers the following three-year leasing options: Plan Fixed Monthly Payment Additional Cost Per Mile I $200 $0.094 per mile II $300
Suppose a car dealer offers the following three-year leasing options:
Plan | Fixed Monthly Payment | Additional Cost Per Mile |
I | $200 | $0.094 per mile |
II | $300 | $0.062 for the first 6,000 miles; $0.050 thereafter |
III | $180 | $0.000 for the first 6,000 miles; $0.12 per mile thereafter |
Based on your past mileage, you calculated the probability of driving between 15,000 to 35,000 in the next three years as:
P(driving 15,000 miles) = 0.1
P(driving 20,000 miles) = 0.2
P(driving 25,000 miles) = 0.2
P(driving 30,000 miles) = 0.3
P(driving 35,000 miles) = 0.2
- Which decision alternative should you choose according to the EV (expected value) rule?
- What is the expected value of perfect information?
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