A fashion designer wants to produce a new line of clothes. In the production of the clothes, expensive, medium-priced, or inexpensive materials can be used. The profit associated with each type of material depends upon economic conditions next year. Below you are given the payoff table. An economist believes that the probability that the economy will improve is 20%, the probability that the economy will stay the same is 70%, and the probability that the economy will get worse is 10%.
a.Compute the expected value for each investment. Which investment is the best?
b.Compute the expected value of perfect information.

Question

A fashion designer wants to produce a new line of clothes. In the production of the clothes, expensive, medium-priced, or inexpensive materials can be used. The profit associated with each type of material depends upon economic conditions next year. Below you are given the payoff table.  An economist believes that the probability that the economy will improve is 20%, the probability that the economy will stay the same is 70%, and the probability that the economy will get worse is 10%. 
a.Compute the expected value for each investment. Which investment is the best?
b.Compute the expected value of perfect information.

Quizplus · Accepted Answer

The Answer of A fashion designer wants to produce a new line of clothes. In the production of the clothes, expensive, medium-priced, or inexpensive materials can be used. The profit associated with each type of material depends upon economic conditions next year. Below you are given the payoff table.  An economist believes that the probability that the economy will improve is 20%, the probability that the economy will stay the same is 70%, and the probability that the economy will get worse is 10%. 
a.Compute the expected value for each investment. Which investment is the best?
b.Compute the expected value of perfect information.

A Fashion Designer Wants to Produce a New Line of Clothes