The probabilities
cybacatx
the_probabilities_hard_rock_cafe.docxThe probabilities Hard Rock Cafe's annual Rockiest
Clay Why bark, a soft-drink vendor at Hard Rock Cafe's annual Rockiest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):
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States of Nature (demand) |
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Alternatives |
Dig |
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 big demand, 0.5 for an average demand, and 0.2 for a small demand.
a) Determine the alternative that provides Clay Why bark the greatest expected monetary value (HMV).
b) Compute the expected value of perfect information
