HW 6 solution (F2011)

# HW 6 solution (F2011) - Chapter 9 Problem 2 AntiSpyPro Low...

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Chapter 9 Problem 2 Spydoctor AntiSpyPro Low Price Medium Price High Price Max Price Min Price Low Price \$20,000 \$25,000 \$30,000 \$30,000 \$20,000 Medium Price \$(5,000) \$24,000 \$28,000 \$28,000 \$(5,000) High Price \$(15,000) \$18,000 \$50,000 \$50,000 \$(15,000) a. If the take the optimistic approach they should set their price high. b. If they take a conservative approach they should set their price low. Spydoctor Opportunity Loss Table AntiSpyPro Low Price Medium Price High Price Low Price Medium Price High Price Max Regret Low Price \$20,000 \$25,000 \$30,000 \$- \$- \$20,000 \$20,000 Medium Price \$(5,000) \$24,000 \$28,000 \$25,000 \$1,000 \$22,000 \$25,000 High Price \$(15,000) \$18,000 \$50,000 \$35,000 \$7,000 \$- \$35,000 c. They should set their price low using the Minimax Regret criteria. Spydoctor AntiSpyPro Low Price Medium Price High Price EMV Low Price \$20,000 \$25,000 \$30,000 \$25,000 Medium Price \$(5,000) \$24,000 \$28,000 \$15,667 High Price \$(15,000) \$18,000 \$50,000 \$17,667 P(Si) 0.33 0.33 0.33 d. They should set a low price if they use an EMV approach.

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Chapter 9 Problem 4 Favorable Market Shop Size Good Fair Bad EMV Small \$10,000 \$8,000 \$5,000 \$7,950 Medium \$30,000 \$20,000 \$- \$18,500 Large \$50,000 \$10,000 \$(5,000) \$20,250 P(market) 35% 40% 25% EV with Free PI \$26,750 (Bolded values in the table are the best payoffs for each state of nature.) EV w/o information \$20,250 EVPI \$6,500 Since the value of the information is less that \$7000 she should decline the offer of the consulting firm. 35.0% #NAME? \$10,000 #NAME? #NAME? Market? 0 #NAME? 40.0% #NAME? \$8,000 #NAME? 25.0% #NAME? \$5,000 #NAME? Shop Size #NAME? 35.0% #NAME? \$30,000 #NAME? #NAME? Market? 0 #NAME? 40.0% #NAME? \$20,000 #NAME? 25.0% #NAME? \$- #NAME? 35.0% #NAME? \$50,000 #NAME? #NAME? Market? 0 #NAME? 40.0% #NAME? \$10,000 #NAME? 25.0% #NAME? \$(5,000) #NAME? The optimal strategy is to build a large salon. Salon Decision Small Good Fair Bad Medium Good Fair Bad Large Good Fair Bad
PrecisionTree Policy Suggestion - Optimal Decision Tree Shop Size 20250 35.0% 35.0% \$50,000 50000 TRUE Market? 0 20250

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HW 6 solution (F2011) - Chapter 9 Problem 2 AntiSpyPro Low...

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