Lisa runs a local flower shop,if it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.The chance of rain is 30%,what is Lisa's gain from perfect information about weather conditions on the forthcoming Valentine's Day?
A)50
B)60
C)90
D)150

Question

Quizplus · Accepted Answer

The gain from perfect information is calculated as the difference between the expected value with perfect information and the expected value without perfect information. Without perfect information, the expected value is: (0.3 * -$200) + (0.7 * $500) = -$60 + $350 = $290. With perfect information, Lisa can avoid the loss entirely by not opening if it will rain, so the expected value is: (0.3 * $0) + (0.7 * $500) = $350. The gain from perfect information is $350 - $290 = $60.

Lisa Runs a Local Flower Shop,if It Rains on Valentine's