# Expected monetary value

The Thomas manufacturing company has $100,000 available to invest Doctor Thomas the president and CEO of the company, would like to choose one of the following three alternatives:

1. Expand her production

2. Invest the money in stocks

3. Purchase a certificate of deposit from the bank.

the unknown is whether the economy will continue at a high level or there will be a recession. She estimates the likelihood of a recesson at 0.20 whethere there is a recession or not, the certificate of deposit will result in a gain of 6 percent. if there is a recession she predicts 10 percent loss if she expands her production and a 5 percent loss if she invests in stocks. If there is not a recession, an expansion of production will result in a 15 percent gain and stock investment will produce a 12 percent gain.

a) what decision should she make if she uses the expected monetary value criterion?

b) what is the expected value of Perfect information?

https://brainmass.com/statistics/central-tendency/expected-monetary-value-21584

#### Solution Preview

probability that there will be a recession p(r) = 0.2

probability that there will be no recession p(nr) = 0.8

a.)

The expectations of expansion her ...

#### Solution Summary

This gives information about a manufacturing company and then asks:

a) what decision should she make if she uses the expected monetary value criterion?

b) what is the expected value of Perfect information?