Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Grove Street for $120,000. Dollar has determined probability estimates of the store's future profitability, based on economic outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4.
a.Should Dollar sell the store on Grove Street?
b.What is the EVPI?
c.Dollar can have an economic forecast performed, costing $10,000, that produces indicators I₁ and I₂, for which P(I₁ $\mid$ 80,000) = .1; P(I₁ $\mid$ 100,000) = .2; P(I₁ $\mid$ 120,000) = .6; P(I₁ $\mid$ 140,000) = .3.Should Dollar purchase the forecast?

Question

Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Grove Street for $120,000. Dollar has determined probability estimates of the store's future profitability, based on economic outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4.
a.Should Dollar sell the store on Grove Street?
b.What is the EVPI?
c.Dollar can have an economic forecast performed, costing $10,000, that produces indicators I₁ and I₂, for which P(I₁

\mid

80,000) = .1; P(I₁

\mid

100,000) = .2; P(I₁

\mid

120,000) = .6; P(I₁

\mid

140,000) = .3.Should Dollar purchase the forecast?

Quizplus · Accepted Answer

The Answer of Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Grove Street for $120,000. Dollar has determined probability estimates of the store's future profitability, based on economic outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4. a.Should Dollar sell the store on Grove Street? b.What is the EVPI? c.Dollar can have an economic forecast performed, costing $10,000, that produces indicators I₁ and I₂, for which P(I₁$\mid$80,000) = .1; P(I₁$\mid$100,000) = .2; P(I₁$\mid$120,000) = .6; P(I₁$\mid$140,000) = .3.Should Dollar purchase the forecast?

Dollar Department Stores Has Received an Offer from Harris Diamonds ∣\mid∣

Dollar Department Stores Has Received an Offer from Harris Diamonds $\mid$