Andrew Thomas, a sandwich vendor at Hard Rock Café's annual Rockfest created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):
Alternatives
|
States of Nature
Big Average Small
|
|
Large Stock
|
$22,000
|
$12,000
|
-$2,000
|
|
Average Stock
|
$14,000
|
$10,000
|
$6,000
|
|
Small Stock
|
$9,000
|
$8,000
|
$4,000
|
The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.
1. Determine the alternative that provides Andrew the greatest Expected Monetary Value. What is this EMV?
2. What is the expected value under certainty?
3. Compute the expected value of perfect information, (EVPI)
4. Determine the appropriate alternative under uncertainty using Maximin. Provide support for your answer.