11. Lab Week 11 Problem Solutions

# 11. Lab Week 11 Problem Solutions - Lab Week 11 Problem...

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Lab Week 11 Problem Solutions CHAPTER 10 DECISION ANALYSIS 17. 17 a and b.

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c. 98% St 50,000 \$ A 2% Ch 20,000 \$ 0.72 49,400 \$ 98% Stable B St 10,000 \$ Use Agency 2% 51,304 \$ Ch 80,000 \$ 0.28 34% 51,304 \$ Changing St 50,000 \$ USE A 66% AGENCY 56,200 \$ Ch 20,000 \$ 34% Don't use agency B St 10,000 \$ 66% Ch 80,000 \$ 80% St 50,000 \$ 20% A Ch 20,000 \$ 44,000 \$ 80% B St 10,000 \$ 20% Ch 80,000 \$ \$49,400 \$56,200 \$44,000 \$51,304 \$24,000 \$30,200 \$11,400 Decision Strategy: Use the agency, if the agency forecast stable economy then go with strategy A, if the agency forecast changing economy the go with strategy B. the Expected value of such decision strategy is \$51,304. d. Yes he should go with the agency as EVSI = \$7,304, while fee is only \$3,000. EVSI = Expected value with additional information – EMV (no survey) = 51,304 - 44,000 = \$7,304. e. Efficiency = EVSI/EVPI where EVPI = EPC – max EMV Expected Payoff under Certainty (EPC) = Expected Value with Perfect information = 0.8(50,000) + 0.2(80,000) = 56,000 EVPI = EPC – max EMV = 56,000 – 44,000 = 12,000 Efficiency = EVSI/EVPI = 7,304/12,000 = .60867 ( or 60.867%)
19 a. 20(1-P H )+ 20P H = 10(1-P H )+ 40P H 20 – 20P h + 20P h = 10 - 10P H + 40P H P H = 1/3 will make the payoffs equal. If P H is less than that, you should build small because it will have the higher EMV.

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## This note was uploaded on 12/04/2011 for the course ADM 2302 taught by Professor El during the Spring '05 term at University of Ottawa.

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11. Lab Week 11 Problem Solutions - Lab Week 11 Problem...

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