Scott has decided to invest in constructing and operating a new sandwich shop and needs to decide how large to build this new facility. The annual profit, including the depreciated investment, will depend on the demand for his products.
The following decision table shows the payoffs, in thousands of dollars, for various combinations of facility size and demand along with Scott's estimates for each demand level. DemandFacility Size Poor Fair Good ExcellentSmall 10 20 50 80Medium 20 30 80 120Large 40 30 140 250Very Large 150 25 190 350Probabilities 0.30 0.20 0.35 0.15The expected monetary value, in thousands of dollars, for building a medium facility is _______.A) 36.00
B) 40.50
C) 46.00
D) 53.50
Question 2
The______________________ represents the expected payoff we will realize if we have prior knowledge about which state of nature will occur.
A) expected value of perfect information (EVPI)
B) expected value under risk (EVUR)
C) expected monetary value (EMV)
D) expected value under certainty (EVUC)
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