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Question

In the Sarahs' Jackets problem, if Sarah believes that the probability of "high" demand is 0.4, and the

probability of "medium" demand is twice as likely as "low" demand, what is the expected value of choosing "Large?




Sarah is considering next season's production options for a line of children's jackets. Sarah knows that the demand for her jackets could be high, medium or low, but has yet to estimate these probabilities. Sarah has, however, estimated profits for each level of demand and size of production (Large, Moderate or Small). See table below:

Demand


High . medium . low


Large $5000 $2500 $1500

Moderate $3750 $4000 $3000

Small $2400 $2800 $3400

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