For the following problem, calculate: EV(d1) EV(d2) Best EMV EVwPI EVPI The value of probability of s1 (p) th

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For the following problem, calculate:

  • EV(d1)
  • EV(d2)
  • Best EMV
  • EVwPI
  • EVPI
  • The value of probability of s1 (p) that is the cut off of changing the best decision. Draw a number line.
  • The value for which the payoff of the strong demand (S) of the best decision must be greater than to keep the best decision the same.
  • The value for which the payoff of the weak demand (W) of the best decision must be greater than to keep the best decision the same.
  • Analyze the scenario and explain what the results mean. Respond to the suggested thought.

Round all probabilities to three decimal places and all EV to one decimal place.

d1= build small complex, d2 = build large complex   s1 = strong demand, s2  = weak demand

 

 

  1. Scenario: The economy is bad and a weak demand is likely.  Think about, even in this situation, when a large complex should still be built.

p(s1) = 0.3       p(s2) = 0.7

 

s1

s2

d1

11

10

d2

14

6

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