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Compute the expected value of perfect information

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Reference no: EM131105068

The probabilitiesHard Rock Cafe's annual Rockiest

Clay Why bark, a soft-drink vendor at Hard Rock Cafe's annual Rockiest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):

States of Nature (demand)

Alternatives

Dig

Average

Small

Large stock

$22,000

$12,000

-$2,000

Average stock

$14,000

$10,000

$6,000

Small stock

$ 9,000

$ 8,000

$4,000

The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.

a) Determine the alternative that provides Clay Why bark the great­est expected monetary value (HMV).

b) Compute the expected value of perfect information.

Reference no: EM131105068

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