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Use the following payoff table to complete parts (a) through (j). The probability of event 1 is 0.30, the probability of event 2 is 0.50, and the probability of event 3 is 0.20. d. Compute the expected opportunity loss (EOL) for each action. EOL(A) = $ EOL(B) = $ EOL(C) = $ (Simplify your answers.) ACTION 500 EVENT Buy 100, A (S) Buy 200, B ($) Buy 500, C (S) Demand 100, 1 300 - 300 Demand 200, 2 1,000 Demand 500, 3 400 500 500 1,000 2,500 e. Explain the meaning of the expected value of perfect information (EVPI) in this problem. Choose the correct answer below. O A. The EVPI value provides a guideline for an upper bound on how much to consider paying for better information. OB. The EVPI is the expected payoff that the company will receive with perfect information. OC. The EVPI is the value that the company should expect to pay for perfect information.

Use the following payoff table to complete parts (a) through (j). The probability of event 1 is 0.30, the probability of event 2 is 0.50, and the probability of event 3 is 0.20. d. Compute the expected opportunity loss (EOL) for each action. EOL(A) = $ EOL(B) = $ EOL(C) = $ (Simplify your answers.) ACTION 500 EVENT Buy 100, A (S) Buy 200, B ($) Buy 500, C (S) Demand 100, 1 300 - 300 Demand 200, 2 1,000 Demand 500, 3 400 500 500 1,000 2,500 e. Explain the meaning of the expected value of perfect information (EVPI) in this problem. Choose the correct answer below. O A. The EVPI value provides a guideline for an upper bound on how much to consider paying for better information. OB. The EVPI is the expected payoff that the company will receive with perfect information. OC. The EVPI is the value that the company should expect to pay for perfect information.

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 21P
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Use the following payoff table to complete parts (a) through (j). The probability of event 1 is 0.30, the probability of event 2 is 0.50, and the probability of event 3 is 0.20. d. Compute the expected opportunity loss (EOL) for each action. EOL(A) = $ EOL(B) = $ EOL(C) = $ (Simplify your answers.) EVENT Demand 100, 1 Demand 200, 2 Demand 500, 3 ACTION Buy 100, A ($) Buy 200, B ($) Buy 500, C ($) - 300 500 300 500 500 e. Explain the meaning of the expected value of perfect information (EVPI) in this problem. Choose the correct answer below. A. The EVPI value provides a guideline for an upper bound on how much to consider paying for better information. O B. The EVPI is the expected payoff that the company will receive with perfect information. O C. The EVPI is the value that the company should expect to pay for perfect information. 1,000 1,000 400 2,500
Transcribed Image Text:Use the following payoff table to complete parts (a) through (j). The probability of event 1 is 0.30, the probability of event 2 is 0.50, and the probability of event 3 is 0.20. d. Compute the expected opportunity loss (EOL) for each action. EOL(A) = $ EOL(B) = $ EOL(C) = $ (Simplify your answers.) EVENT Demand 100, 1 Demand 200, 2 Demand 500, 3 ACTION Buy 100, A ($) Buy 200, B ($) Buy 500, C ($) - 300 500 300 500 500 e. Explain the meaning of the expected value of perfect information (EVPI) in this problem. Choose the correct answer below. A. The EVPI value provides a guideline for an upper bound on how much to consider paying for better information. O B. The EVPI is the expected payoff that the company will receive with perfect information. O C. The EVPI is the value that the company should expect to pay for perfect information. 1,000 1,000 400 2,500
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