A firm's expected profit without information is $50,000,while its expected value with test information is $75,000.If the cost of the test is $40,000,then the expected value of information [EVI] is _____.
A)$85,000
B)$35,000
C)$25,000
D)$10,000
E)$40,000

Question

Quizplus · Accepted Answer

EVI = Expected value with information - Expected value without information
EVI = $75,000 - $50,000
EVI = $25,000

Since the cost of the test is $40,000, the firm would not benefit from taking the test as the EVI is less than the cost. Therefore, the best choice would be to not take the test.

A Firm's Expected Profit Without Information Is $50,000,while Its Expected