Use This Information to Answer the Following Questions -Refer to the Information Above

question 42

Essay

Use this information to answer the following questions.
ABC Inc.must make a decision on its current capacity for next year.Estimated profits (in $000s)based on next year's demand are shown in the table below.
$$\begin{array}{l}\text { Next Year's Demand }\\\begin{array} { l l l } \text { Alternative } & \text { Low } & \text { High } \\\hline \text { Expand } & \$ 100 & \$ 200 \\\text { Subcontract } & \$ 50 & \$ 120 \\\text { Do Nothing } & \$ 40 & \$ 50\end{array}\end{array}$$
-Refer to the information above.Assume that ABC Inc.has hired a marketing research firm that provided additional information regarding next year's demand.Suppose that the probabilities of low and high demand are assessed as follows: P(Low)= 0.4 and P(High)= 0.6.
a.Which alternative should be chosen using the expected monetary value (EMV)criterion?
b.What is the expected value under certainty?
c.What is the expected value under perfect information (EVPI)?

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Definitions:

All-You-Can-Eat Buffet

A type of meal serving format where diners pay a fixed price to consume as much food as they desire from a variety of dishes.

Marginal Utility

The change in total satisfaction or utility that a consumer derives from consuming an additional unit of a good or service.

Consumer View

Refers to the perspective or approach taken by consumers when assessing, purchasing, or using goods and services.

Cash Gifts

Money given to someone without any expectation of repayment, often as a form of financial support or to mark a special occasion.