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Consider the following payoff table for three product decisions (A, B, and C) and three future market conditions (payoffs = P millions) Assume that is now possible for the company to estimate a probability of 0.40 that market condition1 will exist, 0.40 for market condition 2 and a probability of 0.20 that market condition 3 will exist in the future. Determine the best decision using expected value. Determine the expected value of perfect information (EVPI)?Determine the best decision using expected opportunity loss.

Consider the following payoff table for three product decisions (A, B, and C) and three future market conditions (payoffs = P millions) Assume that is now possible for the company to estimate a probability of 0.40 that market condition1 will exist, 0.40 for market condition 2 and a probability of 0.20 that market condition 3 will exist in the future. Determine the best decision using expected value. Determine the expected value of perfect information (EVPI)?Determine the best decision using expected opportunity loss.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Consider the following payoff table for three product decisions (A, B, and C) and three future market conditions (payoffs = P millions)

Assume that is now possible for the company to estimate a probability of 0.40 that market condition1 will exist, 0.40 for market condition 2 and a probability of 0.20 that market condition 3 will exist in the future. Determine the best decision using expected value. Determine the expected value of perfect information (EVPI)?Determine the best decision using expected opportunity loss.

 

Decision ABC с Decision ABC A Decision ABC Market Conditions 1 P10 P8 P7 Market Conditions 2 P20 P12 P9 Market Conditions 3 P5 P9 P17
Transcribed Image Text:Decision ABC с Decision ABC A Decision ABC Market Conditions 1 P10 P8 P7 Market Conditions 2 P20 P12 P9 Market Conditions 3 P5 P9 P17
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