The New Owner of a Beauty Shop Is Trying to Decide

Multiple Choice

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high.

If she feels the chances of low, medium, and high demand are 50 percent, 20 percent, and 30 percent respectively, what is her expected value of perfect information?

A) $54,000
B) $65,000
C) $70,000
D) $80,000
E) $135,000