TABLE 17-2
the Following Payoff Matrix Is Given in Dollars $$\begin{array} { c c l } & { \text { Action } } \\\text { Event } & A & B \\\hline 1 & 400 & 700 \\2 & 200 & 500\end{array}$$

question 38

Multiple Choice

TABLE 17-2
The following payoff matrix is given in dollars.
$$\begin{array} { c c l } & { \text { Action } } \\\text { Event } & A & B \\\hline 1 & 400 & 700 \\2 & 200 & 500\end{array}$$
-Blossom's Flowers purchases roses for sale for Valentine's Day. The roses are purchased for $10 a dozen and are sold for $20 a dozen. Any roses not sold on Valentine's Day can be sold for $5 per dozen. The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100, 200, or 400 dozen roses. Given 0.2, 0.4, and 0.4 are the probabilities for the sale of 100, 200, or 400 dozen roses, respectively, what is the EVPI for buying roses?

• A) $1,500
• B) $2,600
• C) $700
• D) $1,900

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Definitions:

Price

The monetary cost anticipated, called for, or disbursed in payment for an object.

Compensating Variation

An economic concept representing the amount of additional income an individual would need to maintain the same level of utility after a price change.

Utility Function

A mathematical representation used in economics to model the satisfaction or benefit a consumer derives from consuming goods and services.

Prices

The amounts of money required to purchase goods and services, serving as signals in an economy to allocate resources.