Calculate the expected value of perfect information, Operation Management

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Clay Why bark, a soft-drink vendor at Hard Rock Cafe%u2019s annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd)-

States of Nature (demand)

Alternatives Big Average Small

Large stock $24,000 $10,000 -$1,500

Average stock $16,000 $11,000 $6,500

Small stock $ 9,600 $ 8,000 $3,200

The probabilities associated with the states of nature are 0.25 for a big demand, 0.55 for an average demand, and 0.20 for a small demand.

a) Determine the alternative that provides Clay Why bark the greatest expected monetary value (EMV). (Large, Average or small stock)

b) Compute the expected value of perfect information (EVPI).

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