The new business venture, Best-In-World, has been manufacturing technology devices for over 20 years and is considering adding a new technology device to its music line. They have an established reputation for building quality devices, but they are rather novice in the music industry. The Chief Innovation and Design Officer, Julie Naugle-Hall, is tasked with hiring a marketing firm to conduct a survey to determine the feasibility and demand for their new music device. The follow decision table illustrates the potential payoffs for a high demand, moderate demand and low demand for the new music device. The decision will be whether to start production on this new device in small scale, large scale or not at all. Decision Table State of Nature Alternatives High Demand Moderate Demand Low Demand Small-scale production 950,000 500,000 -600,000 Large-scale production 1,900,000 800,000 -1,000,000 No production 0 0 0 Probabilities 0.20 0.30 0.50 Step 2 of 3: What is the Expected Value with Perfect Information?

MATLAB: An Introduction with Applications
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Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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How do I calculate the expected value with perfect information?

The new business venture, Best-In-World, has been manufacturing technology devices for over 20 years
and is considering adding a new technology device to its music line. They have an established reputation
for building quality devices, but they are rather novice in the music industry. The Chief Innovation and
Design Officer, Julie Naugle-Hall, is tasked with hiring a marketing firm to conduct a survey to determine
the feasibility and demand for their new music device. The follow decision table illustrates the potential
payoffs for a high demand, moderate demand and low demand for the new music device. The decision will
be whether to start production on this new device in small scale, large scale or not at all.
Decision Table
State of Nature
Alternatives
High Demand
Moderate Demand
Low Demand
Small-scale production
950,000
500,000
-600,000
Large-scale production
1,900,000
800,000
-1,000,000
No production
0
0
0
Probabilities
0.20
0.30
0.50
Step 2 of 3: What is the Expected Value with Perfect Information?
Transcribed Image Text:The new business venture, Best-In-World, has been manufacturing technology devices for over 20 years and is considering adding a new technology device to its music line. They have an established reputation for building quality devices, but they are rather novice in the music industry. The Chief Innovation and Design Officer, Julie Naugle-Hall, is tasked with hiring a marketing firm to conduct a survey to determine the feasibility and demand for their new music device. The follow decision table illustrates the potential payoffs for a high demand, moderate demand and low demand for the new music device. The decision will be whether to start production on this new device in small scale, large scale or not at all. Decision Table State of Nature Alternatives High Demand Moderate Demand Low Demand Small-scale production 950,000 500,000 -600,000 Large-scale production 1,900,000 800,000 -1,000,000 No production 0 0 0 Probabilities 0.20 0.30 0.50 Step 2 of 3: What is the Expected Value with Perfect Information?
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