The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000)will vary with the amount of precipitation (rainfall)as follows:

If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?
A)$140,000
B)$170,000
C)$285,000
D)$305,000
E)$475,000

Question

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000)will vary with the amount of precipitation (rainfall)as follows:

If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?
A)$140,000 
B)$170,000 
C)$285,000 
D)$305,000 
E)$475,000

Quizplus · Accepted Answer

The Answer of The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000)will vary with the amount of precipitation (rainfall)as follows:

If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?
A)$140,000 
B)$170,000 
C)$285,000 
D)$305,000 
E)$475,000

The Operations Manager for a Well-Drilling Company Must Recommend Whether