13. The manufacturer of designer jeans must decide whether to build a large factory or a small factory in a particular location. The profit per pair of jeans manufactured is estimated as Rs 10. A small factory will have an amortised annual cost of Rs 200,000 with a production capacity of 50,000 jeans per year. A large factory will have an amortised annualised cost of Rs 400,000 with a production capacity of 100,000 jeans per year. Four levels of manufacturing demand are considered equally likely, namely, 10,000;

20,000; 50,000 and 100,000 pairs of jeans per year.

(i) Set up a paY-offtable for building a small factory and a large factory for manufacturing designer jeans.

(ii) Compute the expected monetary value (EMV) for building a small factory and building a large factory.

(iii) Explain the meaning of the expected value of perfect information (EVPI).

(iv) Which would you choose to build, a small factory or a large factory? Why?