UPS and FedEx are two major international shipping companies in Hong Kong. The strategy team at UPS is considering raising its price of service next year. However, the company is not sure whether FedEx will keep its price the same or raise it as well. If FedEx increases the price, thestrategy team estimate that UPS (1) will achieve revenue of $ 2.4 billion per year if it increases its price and (2) will achieve revenue of $1.8 billion per year if it does not increase its price. However, if FedEx does not change its price, the strategyteam estimate that UPS (1) will achieve revenue of $2 billion per year if it increases its price and (2) will achieve $2.2 billion per year if it does not increase its price. UPS believes that there is a 0.25 probability that FedEx would increase its price. You are not required or expected to solve this problem on Precision Tree. In the interest of fairness to everyone, we will not look at or grade any Precision Tree submission for this problem. For full credit, you must show all your work; if you use adecision tree, please draw it; if you use a table or other calculations, please show your work.

Should UPS raise its price if it wants to maximize Expected Monetary Value?

What is the Expected Value of Perfect Information (EVPI)? Show all your work here

Assume that expert information about FedEx price change is available. The expert source would perform analyses on FedEx pricing policy, and provide a report that is either Positive or Negative. Historically, when FedEx actually increases its price, the probability this expert produces a Positive report is 80%; when FedEx does not increase its price, the probability that the expert produces a Negative report is 90%.

What is the probability of a Negative report from the expert?

What is the probability of FedEx increasing its price given a Positive report? What is the probability of FedEx increasing its price given a Negative report?

The strategy team wants to know how much UPS is willing to pay for this report.Answer by using the decision tree below. You may not need to use all the elements of the tree; use only the elements that are useful for providing your solution. For full credit, the decision tree must completely and correctly include all relevant features: EMVs of all alternatives, payoffs of all terminal nodes, and correct labelling of all branches.