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The owner of Burger king is considering three options for a facility next year. He can expand his current shop, move to a larger facility
The owner of Burger king is considering three options for a facility next year. He can expand his current shop, move to a larger facility or make no change. With a favourable market, the annual payoff would be $56,000 if he expands, $70,000 if he moves and $30,000 if he does nothing. With an average market, her payoff will be $21,000, $35,000 and $10,000 respectively. With an unfavourable market, her payoff will be -$21,000, -$45,000 and $5000 respectively. i. Draw the rewards table of her options. (6 marks) What would be the decision using the Optimistic Approach? (3 marks) iii What would be the decision using the Pessimistic Approach? (3 marks) iv What would be his decision using the Laplace (equally likely) Approach? (Show calculations) (5 marks) Refer to the information above. There is a 25% chance of a favourable market, 45% chance of an average market and a 30% chance of an unfavourable market. Calculate the expected monetary value (EMV) for each option and state which should be selected based on this V criterion. (5 marks) vi What is the expected value with perfect information (4 marks) What is the expected value of perfect information (EVPI) (4 marks)
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