Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter17: Making Decisions With Uncertainty
Section: Chapter Questions
Problem 17.5IP
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![The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.
States of Nature
Decision
Alternative
260
110
35
110
110
85
The probabilities for the states of nature are P(s,) = 0.65, P(s,) = 0.15, and P(s,) – 0.20.
(a) What is the optimal decision strategy if perfect information were available?
If s, then 2
If s, then ?
; If s, then ?
(b) What is the expected value for the decision strategy developed in part (a)?
(© Using the expected value approach, what is the recommended decision without perfect information? What is its expected value?
The recommended decision without perfect information is ?
EV =
(d) What is the expected value of perfect information?
EVPI =](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcbc59d36-7bde-4104-8445-1e6fe87b7d59%2F7b7e7b29-cfa4-49b2-8399-384c673ce522%2F6n6i8dd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.
States of Nature
Decision
Alternative
260
110
35
110
110
85
The probabilities for the states of nature are P(s,) = 0.65, P(s,) = 0.15, and P(s,) – 0.20.
(a) What is the optimal decision strategy if perfect information were available?
If s, then 2
If s, then ?
; If s, then ?
(b) What is the expected value for the decision strategy developed in part (a)?
(© Using the expected value approach, what is the recommended decision without perfect information? What is its expected value?
The recommended decision without perfect information is ?
EV =
(d) What is the expected value of perfect information?
EVPI =
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