Question: The owner of Tasty Cookies needs to decide whether to lease a small, medium, or big new retail outlet. She determined that monthly profits will vary with demand for her cookies as follows:
|
|
Demand
|
|
Size of Outlet
|
Low
|
High
|
|
Small
|
1,000
|
1,000
|
|
Medium
|
500
|
2,500
|
|
Large
|
0
|
3,000
|
[A] If she uses the maximin criterion, what size outlet will she decide to lease?
[B] If she feels there is a 30 percent chance that demand will be high, determine the expected monthly profits for the outlet she will decide to lease?
[C] Determine her expected value of perfect information (EVPI)?