Andrew Thomas, a sandwich vendor at Hard Rock Cafe’s annual Rockfest created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):

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Andrew Thomas, a sandwich vendor at Hard Rock Cafe’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.

 

 

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