Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20%20% probability for a strong economy, 30%30% probability for an average economy and 50%50% probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table. Decision Table State of Nature Alternatives Strong Economy Average Economy Bad Economy Small Shop 20,00020,000 18,00018,000 30,00030,000 Medium Shop 45,00045,000 50,00050,000 45,00045,000 Large Shop 85,00085,000 64,00064,000 56,50056,500 Probabilities 0.200.20 0.300.30 0.500.50 EMV= small shop? $ EMV= medium shop? $ EMV= large shop? $ Calculate the Expected Monetary Values (EMV) for each alternative.
Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20%20% probability for a strong economy, 30%30% probability for an average economy and 50%50% probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table. Decision Table State of Nature Alternatives Strong Economy Average Economy Bad Economy Small Shop 20,00020,000 18,00018,000 30,00030,000 Medium Shop 45,00045,000 50,00050,000 45,00045,000 Large Shop 85,00085,000 64,00064,000 56,50056,500 Probabilities 0.200.20 0.300.30 0.500.50 EMV= small shop? $ EMV= medium shop? $ EMV= large shop? $ Calculate the Expected Monetary Values (EMV) for each alternative.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20%20% probability for a strong economy, 30%30% probability for an average economy and 50%50% probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table.
Decision Table
| State of Nature | |||
|---|---|---|---|
| Alternatives | Strong Economy | Average Economy | Bad Economy |
| Small Shop | 20,00020,000 | 18,00018,000 | 30,00030,000 |
| Medium Shop | 45,00045,000 | 50,00050,000 | 45,00045,000 |
| Large Shop | 85,00085,000 | 64,00064,000 | 56,50056,500 |
| Probabilities | 0.200.20 | 0.300.30 | 0.500.50 |
EMV= small shop? $
EMV= medium shop? $
EMV= large shop? $
Calculate the Expected Monetary Values (EMV) for each alternative.
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