Answer to a problem based on decision theory

Reference no: EM1316760

The owner of Tasty Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimated that monthly profits will vary with demand for her cookies as follows:

Demand
Size of Outlet Low High
Small 1,000 1,000
Medium 500 2,500
Large 0 3,000

a. If she uses the maximin criterion, what size outlet will she decide to lease?

b. If she feels there is a 30% chance that demand will be high, what are the expected monthly profits for the outlet she will decide to lease?

c. What is her expected value of perfect information (EVPI)?

Reference no: EM1316760

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