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

question 29

Essay

Use this information to answer the following questions.
A plant manager is considering buying additional stamping machines to accommodate increasing demand.The alternatives are to buy 1 machine,2 machines,or 3 machines.The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not.The payoff table below illustrates the profits realized (in $000's)based on the different scenarios faced by the manager.
$$\begin{array} { l c c } \text { Alternative } & \text { Bid Accepted } & \text { Bid Rejected } \\\hline \text { Buy 1 machine } & \$ 10 & \$ 5 \\\text { Buy 2 machines } & \$ 30 & \$ 4 \\\text { Buy 3 machines } & \$ 40 & \$ 2\end{array}$$
-Refer to the information above.Assume that based on historical bids with the defense contractor,the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.
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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