Mark Ewing has decided to enter contract with uber service provider in his area. The driver offers a car variety of mileage or distance to be travelled to him. All contracts were to be signed for three years. The first option has a monthly rent of P3,000, with a total mileage allowance of 36,000 kilometers (an average of 12,000 kilometers per year) and a cost of P35 per kilometer for any kilometers over 36,000. The following table summarizes each of the Uber Service Contract offered to him: 3-Year Contract Monthly Cost Mileage Allowance Cost Per Excess Kilometer Option A P
Mark Ewing has decided to enter contract with uber service provider in his area. The driver offers a car variety of mileage or distance to be travelled to him. All contracts were to be signed for three years. The first option has a monthly rent of P3,000, with a total mileage allowance of 36,000 kilometers (an average of 12,000 kilometers per year) and a cost of P35 per kilometer for any kilometers over 36,000. The following table summarizes each of the Uber Service Contract offered to him:
|
3-Year Contract |
Monthly Cost |
Mileage Allowance |
Cost Per Excess Kilometer |
|
Option A |
P3,000 |
30,000 |
P 35 |
|
Option B |
P3,500 |
45,000 |
P 25 |
|
Option C |
P4,000 |
54,000 |
P 15 |
Mark has estimated that, during the 3 years of the agreement, there is a 40% chance he will drive an average of 12,000 kilometers per year, a 30% chance he will drive an average of 15,000 miles per year, and a 30% chance that he will drive 18,000 miles per year. In evaluating the options, Mark would like to keep his costs as low as possible.
Required:
- What decision would Mark make if he wanted to minimize her expected cots (monetary value)?
- Calculate the expected value of perfect information for this problem.
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