The Video Game Supply Company (VGS) is deciding whether to set production next year at 2,000, 2,500, or 3,000 games. Demand could be low, medium, or high. Using historical data, VGS estimates the probabilities as 0.4 for low demand, 0.3 for medium demand, and 0.3 for high demand. The following profit payoff table (in $100s) has been developed.
a.Determine the expected value of each alternative and indicate what should be the production target.
b.Determine the expected value with perfect information about the states of nature.
c.Determine the expected value of perfect information.

Question

The Video Game Supply Company (VGS) is deciding whether to set production next year at 2,000, 2,500, or 3,000 games. Demand could be low, medium, or high. Using historical data, VGS estimates the probabilities as 0.4 for low demand, 0.3 for medium demand, and 0.3 for high demand. The following profit payoff table (in $100s) has been developed.  
a.Determine the expected value of each alternative and indicate what should be the production target.
b.Determine the expected value with perfect information about the states of nature.
c.Determine the expected value of perfect information.

Quizplus · Accepted Answer

The Answer of The Video Game Supply Company (VGS) is deciding whether to set production next year at 2,000, 2,500, or 3,000 games. Demand could be low, medium, or high. Using historical data, VGS estimates the probabilities as 0.4 for low demand, 0.3 for medium demand, and 0.3 for high demand. The following profit payoff table (in $100s) has been developed.  
a.Determine the expected value of each alternative and indicate what should be the production target.
b.Determine the expected value with perfect information about the states of nature.
c.Determine the expected value of perfect information.

The Video Game Supply Company (VGS) Is Deciding Whether to Set