Problem 2: 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: Develop a cost table for this situation What decision would Mark make if he were optimistic? What decision would Mark make if he were pessimistic? 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
Problem 2:
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:
- Develop a cost table for this situation
- What decision would Mark make if he were optimistic?
- What decision would Mark make if he were pessimistic?
- 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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