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d) Calculate the expected value of perfect information (EVPI)- the most that should be paid CWD for prediction of the uncertain outcomes e) What is the efficiency of sample information?4

d) Calculate the expected value of perfect information (EVPI)- the most that should be paid CWD for prediction of the uncertain outcomes e) What is the efficiency of sample information?4

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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d) Calculate the expected value of perfect information (EVPI)- the most that should be paid CWD for prediction of the uncertain outcomes e) What is the efficiency of sample information?
Transcribed Image Text:d) Calculate the expected value of perfect information (EVPI)- the most that should be paid CWD for prediction of the uncertain outcomes e) What is the efficiency of sample information?
Question 2 A farmer in the Blue Mountains area of Jamaica wants to decide on the crop to plant next season. He wants to plant either ganja or coffee for export to the USA but need some help. He knows that if he plants ganja and the weather in the USA is predominantly cold he earns $10,000(US per month. If the weather is warm he earns $16,000. If he plants coffee and the weather is cold he earns 13,000 and if the weather is warm he earns $14000. In 40% of the years, the weather was cold and in 60 % the weather was warm. For $600, he could buy an expert weather forecast from CWD consulting. States of Nature with Profits ($) Does not include forecast cost Decision Warm Cold weather (C) Alternatives weather(W) Ganja $16,000 $10,000 Coffee $14,000 $13000 Prior Probabilities P(W) = 0.60 P(C) = .40 Conditional probability for a given state of nature where forecasts are either Good (G) or bad (B): That is: P (G|W) = 0.80; P (B|W) = 0.20; P (G|C) = 0.10; P (B|C) = 0.90 After vou have computed the revised probabilities round to two decimal places
Transcribed Image Text:Question 2 A farmer in the Blue Mountains area of Jamaica wants to decide on the crop to plant next season. He wants to plant either ganja or coffee for export to the USA but need some help. He knows that if he plants ganja and the weather in the USA is predominantly cold he earns $10,000(US per month. If the weather is warm he earns $16,000. If he plants coffee and the weather is cold he earns 13,000 and if the weather is warm he earns $14000. In 40% of the years, the weather was cold and in 60 % the weather was warm. For $600, he could buy an expert weather forecast from CWD consulting. States of Nature with Profits ($) Does not include forecast cost Decision Warm Cold weather (C) Alternatives weather(W) Ganja $16,000 $10,000 Coffee $14,000 $13000 Prior Probabilities P(W) = 0.60 P(C) = .40 Conditional probability for a given state of nature where forecasts are either Good (G) or bad (B): That is: P (G|W) = 0.80; P (B|W) = 0.20; P (G|C) = 0.10; P (B|C) = 0.90 After vou have computed the revised probabilities round to two decimal places
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