A Fashion Designer Wants to Produce a New Line of Clothes.In

question 49

Essay

A fashion designer wants to produce a new line of clothes.In the production of the clothes,expensive,medium-priced,or inexpensive materials can be used.The profit associated with each type of material depends upon economic conditions next year.Below you are given the payoff table.
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$$\begin{array} { c | c c c } \text { Decisions } & \begin{array} { c } \text { Economy } \\\text { Improves }\end{array} & \begin{array} { c } \text { Economy } \\\text { Stays the Same }\end{array} & \begin{array} { c } \text { Economy } \\\text { Gets Worse }\end{array} \\\hline \text { Expensive } & 80,000 & 40,000 & 10,000 \\\text { Medium } & 40,000 & 60,000 & 70,000 \\\text { Inexpensive } & 10,000 & 30,000 & 60,000\end{array}$$ An economist believes that the probability that the economy will improve is 20%,the probability that the economy will stay the same is 70%,and the probability that the economy will get worse is 10%.
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a.Compute the expected value for each investment.Which investment is the best?
b.Compute the expected value of perfect information.​

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Definitions:

Regular Cash Dividend

A payment made by a company to its shareholders, usually in the form of cash, out of its profits or reserves on a regular basis, such as quarterly or annually.

Stock Price

The cost of purchasing a share of a company's stock, representing partial ownership in the company.

Cum Dividend

A term indicating that a stock is trading with the right to receive the most recently declared dividend.

Shareholders of Record

Shareholders of record are individuals or entities that are officially recorded by a company as the legal owners of its shares on a specific date.