You have decided to open a restaurant in Huntington. The following table gives the payoffs...

You have decided to open a restaurant in Huntington. The following table gives the payoffs based on two states of nature, favorable and unfavorable demand. You believe that the probability of a favorable market is 0.8. You can open any one of three different sizes of restaurant.

Open	Favorable	Unfavorable
Large Restaurant	50,000	-40,000
Medium Restaurant	40,000	-10,000
Small Restaurant	20,000	10,000

You have decided to do some marketing research (using the skills that you learned). If the marketing research is positive (probability = .7), then the probability of favorable demand goes to .95. If the marketing research is negative (shows weak demand) (probability of .3), then the probability of favorable demand goes to .40.

Using all of the information, what should you do? Provide calculations.

What is the expected value of perfect information?

What is the expected value of sample information?

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Expert Solution

orchestra answered 1 year ago

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