Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It" really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20 % probability for a strong economy, 30 % probability for an average economy and 50 % probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table. Alternatives Answer Small Shop Medium Shop Large Shop Probabilities Calculate the Expected Monetary Values (EMV) for each alternative. Strong Economy 25,000 50,000 85,000 0.20 Decision Table EMV (small shop) = $ EMV medium shop) = $ EMV (large shop): = $ State of Nature Average Economy 18,000 50,000 66,000 0.30 Bad Economy 30,000 45,000 48,500 0.50 63 Tables Keypad Keyboard Shortcuts
Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It" really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20 % probability for a strong economy, 30 % probability for an average economy and 50 % probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table. Alternatives Answer Small Shop Medium Shop Large Shop Probabilities Calculate the Expected Monetary Values (EMV) for each alternative. Strong Economy 25,000 50,000 85,000 0.20 Decision Table EMV (small shop) = $ EMV medium shop) = $ EMV (large shop): = $ State of Nature Average Economy 18,000 50,000 66,000 0.30 Bad Economy 30,000 45,000 48,500 0.50 63 Tables Keypad Keyboard Shortcuts
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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![**Decision Making for Opening a Bakery**
Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a strategic location where he believes there will be interest in the bakery. However, Dillon is unsure about the level of interest and is weighing his options between a small, medium, or large shop. The decision is influenced by the state of the economy in the coming year, affecting customers' spending on his Italian delicacies.
**Economic Probabilities:**
- Strong Economy: 20%
- Average Economy: 30%
- Bad Economy: 50%
**Decision Table:**
| Alternatives | Strong Economy | Average Economy | Bad Economy |
|---------------|----------------|-----------------|-------------|
| Small Shop | $25,000 | $18,000 | $30,000 |
| Medium Shop | $50,000 | $50,000 | $45,000 |
| Large Shop | $85,000 | $66,000 | $48,500 |
The potential payoffs for each shop size are influenced by the economy's state.
**Task:**
Calculate the Expected Monetary Values (EMV) for each alternative using the given probabilities.
**Answer:**
To find the EMV for each shop option, use the formula:
\[ \text{EMV} = (\text{Payoff in Strong Economy} \times \text{Probability of Strong Economy}) + (\text{Payoff in Average Economy} \times \text{Probability of Average Economy}) + (\text{Payoff in Bad Economy} \times \text{Probability of Bad Economy}) \]
1. **EMV (small shop) = $"".**
2. **EMV (medium shop) = $"".**
3. **EMV (large shop) = $"".**
Fill in the calculations for the EMVs based on the provided formula and data.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F93d6464e-f155-4940-8921-7114e2ab97cc%2F77b5415f-01c0-4e7a-8808-1fb3b34281e9%2Fd56hq3p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Decision Making for Opening a Bakery**
Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a strategic location where he believes there will be interest in the bakery. However, Dillon is unsure about the level of interest and is weighing his options between a small, medium, or large shop. The decision is influenced by the state of the economy in the coming year, affecting customers' spending on his Italian delicacies.
**Economic Probabilities:**
- Strong Economy: 20%
- Average Economy: 30%
- Bad Economy: 50%
**Decision Table:**
| Alternatives | Strong Economy | Average Economy | Bad Economy |
|---------------|----------------|-----------------|-------------|
| Small Shop | $25,000 | $18,000 | $30,000 |
| Medium Shop | $50,000 | $50,000 | $45,000 |
| Large Shop | $85,000 | $66,000 | $48,500 |
The potential payoffs for each shop size are influenced by the economy's state.
**Task:**
Calculate the Expected Monetary Values (EMV) for each alternative using the given probabilities.
**Answer:**
To find the EMV for each shop option, use the formula:
\[ \text{EMV} = (\text{Payoff in Strong Economy} \times \text{Probability of Strong Economy}) + (\text{Payoff in Average Economy} \times \text{Probability of Average Economy}) + (\text{Payoff in Bad Economy} \times \text{Probability of Bad Economy}) \]
1. **EMV (small shop) = $"".**
2. **EMV (medium shop) = $"".**
3. **EMV (large shop) = $"".**
Fill in the calculations for the EMVs based on the provided formula and data.
Expert Solution
Step 1: Determine the given variables.
The question is about decision theory.
Given :
To find :
EMV for each alternative.
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Solved in 3 steps with 6 images
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