Alternatives 1 and 2 in the Following Payoff Table Represent

question 50

Essay

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂,and S₃ characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars. The management believes that weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.Based on this information,the prior probabilities have been revised.If the weather conditions are favorable,P(S₁)= .4286,P(S₂)= .5357,and P(S₃)= .0357;and if the weather conditions are poor,P(S₁)= .1364,P(S₂)= .6818,and P(S₃)= .1818.It is also determined that the probability of favorable weather is 0.56 and the probability of poor weather is 0.44.Determine the expected value of sample information.What is the maximum amount that the company is willing to pay for the weather information and the additional analysis?

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Definitions:

Smelted

The process of extracting a metal from its ore by heating and melting.

Carload

A shipping term denoting the minimum quantity of cargo required for a shipper to qualify for a reduced rate.

Hormone-Free

Refers to animals raised without the use of growth hormones, often used in reference to meat or dairy products.

Stress-Free

A state or condition where an individual experiences no or minimal stress, leading to a sense of calm and tranquility.