Refer to Problem 1 Suppose after a certain amount of discussion the contractor is able to subjectively assess

QUESTION:

Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: P (low) = .3 and P (high) = .7.

(a) Determine the expected profit of each alternative. Which alternative is best? Why?

(b) Analyze the problem using a decision tree. Show the expected profit of each alternative on the tree.

(c) Compute the expected value of perfect information. How could the contractor use this knowledge?


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