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
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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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