Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort. The sale of Sno-Cones is highly dependent upon his location and upon the weather
At the resort, he will profit $110 per day in fair weather, $20 per day in foul weather. At home, he will profit $70 in fair weather, $50 in foul weather. Assume that on any particular day, the weather service suggests a 60% chance of fair weather.
a. Construct Earl's payoff table.
b. What decision is recommended by the expected monetary value criterion?
c. What is the EVPI?
(a) The payoff table is
Profit Fair weather Foul weather
Probability = 0.6 Probability = .4
Sell at the resort 110 20
Sell at home 70 50
(b) the EMV for sell at the resort = .6(110 ) + .4(20 ) = 74; The EMV for sell at home = .6(70 ) + .3(50 ) = 62. The better value is $74, so Earl should sell at the resort.
(c) EVwPI = .6(110 ) + .4(50 ) = $86; EVPI = $86 - $74 = $12.
You might also like to view...
Which situation poses ethical concerns for the researcher in terms of preserving the anonymity of the respondents?
A) when the population size is large B) sampling details that are too revealing C) verbatim quotations in reports to the client D) both B and C
At Trainke Automotive Supply, Inc, when a part breaks down in the warehouse, the floor worker reports it to the supervisor who reports the break to the warehouse manager, who then selects a vendor to come and repair the equipment, often based on the
supervisor's recommendations of what vendor has responded the quickest and done the best work in the past. The supervisor and manager both rely on floor workers to keep vigilant watch over the equipment they work with daily. This is an example of: a. team member roles b. role differentiation c. buying situations d. value management system
The Wheeler Company payroll for the week ended November 8 is $80,000 with 15 percent withheld for employee income taxes and 8 percent for FICA taxes. The total amount of taxes to be remitted by the employer for this payroll, ignoring unemployment insurance taxes, would be:
a. $18,400 b. $12,000 c. $12,800 d. $24,800
Pacific Bicycle, Inc., is the major distributor of bikes in the state of California. Pacific's closest competitor is Golden State Bike Company, another California firm. They agree that Golden State will distribute bikes in northern California and Pacific will distribute bikes in southern California. This is
A. a group boycott. B. a market division. C. a price-fixing agreement. D. a tying arrangement.