The decision sciences department is trying to determinewhich of two copying machines to purchase. Both machineswill satisfy the department’s needs for the next ten years.Machine 1 costs $2,000 and has a maintenance agreement,which, for an annual fee of $150, covers all repairs. Machine2 costs $3,000, and its annual maintenance cost is a randomvariable. At present, the decision sciences departmentbelieves there is a 40% chance that the annual maintenancecost for machine 2 will be $0, a 40% chance it will be $100,and a 20% chance it will be $200.Before the purchase decision is made, the departmentcan have a trained repairer evaluate the quality of machine2. If the repairer believes that machine 2 is satisfactory,there is a 60% chance that its annual maintenance cost willbe $0 and a 40% chance it will be $100. If the repairerbelieves that machine 2 is unsatisfactory, there is a 20%chance that the annual maintenance cost will be $0, a 40%chance it will be $100, and a 40% chance it will be $200.If there is a 50% chance that the repairer will give asatisfactory report, what is EVSI? If the repairer charges$40, what should the decision sciences department do? Whatis EVPI?
The decision sciences department is trying to determine
which of two copying machines to purchase. Both machines
will satisfy the department’s needs for the next ten years.
Machine 1 costs $2,000 and has a maintenance agreement,which, for an annual fee of $150, covers all repairs. Machine
2 costs $3,000, and its annual maintenance cost is a random
variable. At present, the decision sciences department
believes there is a 40% chance that the annual maintenance
cost for machine 2 will be $0, a 40% chance it will be $100,
and a 20% chance it will be $200.
Before the purchase decision is made, the department
can have a trained repairer evaluate the quality of machine
2. If the repairer believes that machine 2 is satisfactory,
there is a 60% chance that its annual maintenance cost will
be $0 and a 40% chance it will be $100. If the repairer
believes that machine 2 is unsatisfactory, there is a 20%
chance that the annual maintenance cost will be $0, a 40%
chance it will be $100, and a 40% chance it will be $200.
If there is a 50% chance that the repairer will give a
satisfactory report, what is EVSI? If the repairer charges
$40, what should the decision sciences department do? What
is EVPI?
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