A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative- state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day 28 38 36 42 33 39 Machine 1 Machine 2 Machine 3 32 39 38 Machine 4 29 33 34 37 40 38 Machine 5 Assume that for a randomly selected day, there is a 35% probability of cold weather, 45% probability of mild weather, and 20% probability of warm weather. What is the EVPI?

A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative- state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day 28 38 36 42 33 39 Machine 1 Machine 2 Machine 3 32 39 38 Machine 4 29 33 34 37 40 38 Machine 5 Assume that for a randomly selected day, there is a 35% probability of cold weather, 45% probability of mild weather, and 20% probability of warm weather. What is the EVPI?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A plant manager considers the operational cost per hour of five machine alternatives.
The cost per hour is sensitive to three potential weather conditions: cold, mild, and
warm. The following table represents the operations cost per hour for each alternative-
state of nature combination:
States of Nature
Weather related cost per hour
Alternatives Cold cost/day Mild cost/day Warm cost/day
Machine 1
28 38 36
Machine 2
42 33 39
Machine 3
32 39 38
Machine 4
29 33 34
Machine 5
37 40 38
Assume that for a randomly selected day, there is a 35% probability of cold weather,
45% probability of mild weather, and 20% probability of warm weather. What is the
EVPI?

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