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Ron value of clairvoyance on the market detector indication

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Reference no: EM131757688

Question: Ron of RonCo Rain Detectors is considering rolling out his line ofrain-detecting equipment nationwide. Two rollout alternatives are under consideration; national and regional. Ron is uncertain how large the rain-detecting market might be. After speaking with many experts, Ron believes no matter which alternative he chooses, the probability of a Large Market is 0.7 while the probability of a Small Market is 0.3. Ron evaluates the four prospects as follows.

2138_Prospect.png

Mark of Mark's Market Testing offers to sell Ron a market detector. If the market will be large, the detector will indicate "Large" 60% of the time. If the market will be small the detector will indicate "Small" 95% of the time. What is Ron's value of clairvoyance (VOC) on the market detector indication? (You may assume that RonCo is risk-neutral for the range of prospects in this problem. Values are rounded to the nearest thousands of dollars.)

a. 15

b. Ron would not buy clairvoyance because he is risk-neutral.

c. 25

d. 0

Reference no: EM131757688

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