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Alternatives 1 and 2 in the Following Payoff Table Represent

Question 19

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Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.s1,s2,and s3 characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars.Prior probabilities are .3 for s1;.6 for s2,and .1 for s3. Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S<sub>I</sub>)represent the levels of demand for the company products.s<sub>1</sub>,s<sub>2</sub>,and s<sub>3</sub> characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars.Prior probabilities are .3 for s<sub>1</sub>;.6 for s<sub>2</sub>,and .1 for s<sub>3</sub>. What is the maximum amount that the company would be willing to pay for perfect information? What is the maximum amount that the company would be willing to pay for perfect information?

Correct Answer:

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EVPI = 17
EMV1 = (.3)(110)+ (.6)...

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