Calculate the expected value of perfect information

Assignment Help Operation Management

Reference no: EM13101257

Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area, but that dealer has several leasing options to accomadate a variety of driving patterns. All the leases are for 3 years and require no money at the time of signing the lease. The first option has a monthly clost of $330, a total mileage allowance of 36,000 miles (an average of 12,000 miles per year), and a cost of $0.35 per mile for any miles over 36,000. The following table summarizes each of the three lease options:

3 year lease Monthly cost Mileage Allowance Cost Per Excess Mile
Option 1 $330 36,000 $0.35
Option 2 $380 45,000 $0.25
Option 3 $430 54,000 $0.15

Beverly has estimated that, during the 3 years of the lease, there is a 40% chance she will drive an average of 12,000 miles per year, a 30% chance she will drive an average of 15,000 miles per year, and a 30% chance that she will drive 18,000 miles per year. In evaluating these lease options, Beverly would like to keep her costs as low as possible.

(a) Develop a payoff (cost) table for this situation.
(b) What decision would Beverly make if she were optomistic?
(c) What decision would Beverly make if she were pessimistic?
(d) What decision would Beverly make if she wanted to minimize her expected cost (monetary value)?
(e) Calculate the expected value of perfect information for this problem.

Reference no: EM13101257

Questions Cloud

Where do you draw the line among taking care of the share : Where do you draw the line among taking care of the shareholders and corporate responsibility?

Statistically evidence that candidate has valid signatures : Is this statistically significant evidence that the candidate has enough valid signatures overall? Explain.

How much work does the electric field : How much work does the electric field do in moving a -7.7 microCoulomb charge from ground to a point whose potential is +positive 55V higher.

Examine roginsky chances of success : He becomes enraged at the insult to his mother and refuses to allow Roginsky to do her portrait. Roginsky files a breach of contract suit against Smunt. Examine Roginsky's chances of success.

Calculate the expected value of perfect information : Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area.

Quilt shop managers are engaged in the management function : find out goals that they will pursue and decide upon specific actions for each area of the company to take in pursuit of these goals. With these actions the Quilt Shop managers are engaged in the management function?

What was the initial negative charge : What was the initial negative charge on one of the spheres, and what was the initial positive charge on the other?(Hint: Use charge conservation and solve for one of the initial charges. You will end up with a quadratic equation. The solutions giv..

Multiple choice questions - business law : Mr. Gregg has made an inflammatory speech denouncing the action of the government in the recent war. The government can restrict his speech through regulation:

Illustrate what dependent variables do you think : Illustrate what dependent variables do you think might be important in the study? Name at least three.3. Develop a hypothesis for each of your dependent variables.

User Account

All Pages