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Unformatted text preview: information before making his final decision. He decides to contract with a market research firm to conduct a market survey. How much should Jeff be willing to pay for accurate information (i.e. What is the Expected Value of Perfect Information, EVPI?)? 1 ANSWERS Problem 1: Problem 2: Therefore, the appropriate choice under equally likely market conditions is to make the minor modifications ( $10, .) EMV = 000 2 Problem 3: With knowledge of when a favorable market will occur, Jeff’s best payoff is major renovation. This happens 1 2 the time. $100, * . $50, 000 5 000 = When unfavorable market exists, Jeff will do nothing, which happens 1 2 the time. 5 * . = . $0 so Perfect Information yields = + = ($100, ) ( * . ) $50, 000 5 5 000 * . Therefore EMV is $10,000 vs. $50,000 with Perfect Information and EVPI == $50, $10, $40, 000 000 000 3...
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This note was uploaded on 08/22/2009 for the course OPER 1401 taught by Professor Robshepherd during the Fall '05 term at Niagara College.
 Fall '05
 RobShepherd

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