The Tamesek Company is considering purchasing one of two mutually exclusive machines. Machine A is most suited to low levels of demand whereas machine B is suited to high-level demand. There are only two possible outcomes and each has the same level of probability. The estimated profits for each demand level are as follows: There is a possibility of employing a firm of management consultants who would be able to provide a perfect prediction of actual demand. What is the maximum amount that the company would be prepared to pay for the additional information?
A) £98,000
B) £14,000
C) £70,000
D) None of the above

Question

The Tamesek Company is considering purchasing one of two mutually exclusive machines. Machine A is most suited to low levels of demand whereas machine B is suited to high-level demand. There are only two possible outcomes and each has the same level of probability. The estimated profits for each demand level are as follows:  There is a possibility of employing a firm of management consultants who would be able to provide a perfect prediction of actual demand. What is the maximum amount that the company would be prepared to pay for the additional information?
A) £98,000 
B) £14,000 
C) £70,000 
D) None of the above

Quizplus · Accepted Answer

The Answer of The Tamesek Company is considering purchasing one of two mutually exclusive machines. Machine A is most suited to low levels of demand whereas machine B is suited to high-level demand. There are only two possible outcomes and each has the same level of probability. The estimated profits for each demand level are as follows:  There is a possibility of employing a firm of management consultants who would be able to provide a perfect prediction of actual demand. What is the maximum amount that the company would be prepared to pay for the additional information?
A) £98,000 
B) £14,000 
C) £70,000 
D) None of the above

The Tamesek Company Is Considering Purchasing One of Two Mutually