The Quality Control Manager for ENTA Inc -What Is the Maximum Amount That You Would Be Willing

question 1

Essay

The quality control manager for ENTA Inc. must decide whether to accept (A1), further analyze (A2), or reject (A3) a lot of incoming material. Assume the following payoff table is available. Historical data indicates that there is 30% chance that the lot is poor quality (S1), 50 % chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3).
$$\begin{array} { l r r r } & \mathbf { S } _ { \mathbf { 1 } } & \mathbf { S } _ { \mathbf { 2 } } & \mathbf { S } _ { \mathbf { 3 } } \\\mathbf { A } _ { \mathbf { 1 } } & 20 & 30 & 90 \\\mathbf { A } _ { \mathbf { 2 } } & 60 & 70 & 10 \\\mathbf { A } _ { \mathbf { 3 } } & 80 & 50 & 40\end{array}$$
-What is the maximum amount that you would be willing to pay for perfect information?

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Definitions:

Promissory Note

A written, legally binding document in which one party promises to pay a specified sum of money to another party under agreed terms.

Takeover Bid

An offer made to acquire some or all of shareholders' shares in a corporation with the aim of gaining control of the company.

Cumulative Dividend

A feature of preferred stock that entitles shareholders to receive dividends that were omitted in the past.

Par Value

The nominal or face value of a share of stock or a bond as stated by the issuer.