Jiminy Sweeps is the owner of Ash Kickers, Inc. a chimney cleaning business. Jiminy has just bought an expensive chimney cleaning machine. The machine uses special brushes that only fit this machine. Jiminy is uncertain how many sets of these brushes he will need during the useful life of the machine. The probability distribution for the number of brush sets needed during the life of the machine is given by the following: Brush Sets Needed Probability 20 .2 30 .6 40 .2 If Jiminy buys the brush sets as part of the machine purchase, the cost is $300 per set. If Jiminy buys them later as he needs them, the cost jumps to $500 per set. If Jiminy buys too many sets with the machine purchase and doesn’t need them, their salvage value is only $100 per set a. Draw the Payoff Table and the Opportunity Loss tables. b.Find the optimal action according to Maximax, Maximin, and Maximum Likelihood. c. Write the expressions for the EMVs. d. If the optimal EMV has a value of -$9,800, write the expression for EVPI.
Jiminy Sweeps is the owner of Ash Kickers, Inc. a chimney cleaning business. Jiminy has just bought an expensive chimney cleaning machine. The machine uses special brushes that only fit this machine. Jiminy is uncertain how many sets of these brushes he will need during the useful life of the machine. The probability distribution for the number of brush sets needed during the life of the machine is given by the following:
|
Brush Sets Needed |
Probability |
|
20 |
.2 |
|
30 |
.6 |
|
40 |
.2 |
If Jiminy buys the brush sets as part of the machine purchase, the cost is $300 per set. If Jiminy buys them later as he needs them, the cost jumps to $500 per set. If Jiminy buys too many sets with the machine purchase and doesn’t need them, their salvage value is only $100 per set
a. Draw the Payoff Table and the Opportunity Loss tables.
b.Find the optimal action according to Maximax, Maximin, and Maximum Likelihood.
c. Write the expressions for the EMVs.
d. If the optimal EMV has a value of -$9,800, write the expression for EVPI.
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