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    Greatest expected monetary value and expected value

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    Clay Whybark, a soft-drink vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd)

    States of nature (demand)

    Alternatives Big Average Small

    Large stock $22,000 $12,000 $-2,000
    Average stock $14,000 $10,000 $ 6,000
    Small stock $ 9,000 $ 8,000 $ 4,000

    The probabilities associated with the states of nature are 0.3 for a bid gemand, 0.5 for an average demand, and 0.2 for a small demand.

    a) Determine the alternative that provides Clay Shybark the greatest expected monetary value (EMV)

    b) Compute the expected value of perfect information (EVPI)

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    Solution Summary

    The greatest expected monetary value and the expected value of perfect information (EVPI) for Clay Whybark is determined.