Discussion:
Q: Suppose a product needs to be marketed, but the manufacturer can make the product in three ways using any one of the three designs. There are three categories of market conditions and they occur with the probabilities given in the following table:
|
Design
|
Market condition
|
|
I with probability 0.5
|
II with probability 0.3
|
III with probability 0.2
|
|
A
|
$30
|
$15
|
$10
|
|
B
|
$15
|
$20
|
$15
|
|
C
|
$5
|
$10
|
$40
|
Calculate the best expected pay off (EMV). For which design is the EMV maximum? Calculate the EVPI, and the value of perfect information.