Question

USE THIS TABLE to practice the Expected Monetary Value (EMV), Expected Opportunity Loss (EOL), and Expected Value of Perfect Information (EVPI). *** Use the .30 for the probability of a Strong Market, .50 for the probability of a Fair Market, and .20 for the probability of a Poor Market. (SHOW YOUR WORK) and show your selections (highlight your best alternative)

Type of Facility	Profit
	Strong Market	Fair Market	Poor Market
Large Facility	550,000	110,000	-310,000
Medium-sized facility	300,000	129,000	-100,000
Small Facility	200,000	100,000	-32,000
No facility	0	0	0

Answer 1

Facility type	Profit
	Strong Market	Fair	Poor
Large	550,000	110,000	-310,000
Medium	300,000	129,000	-100,000
Small	200,000	100,000	-32,000
No facility	0	0	0

Probability is .30 for strong,.50 for fair and .20 for poor markets

EMV(Large)=0.30(550,000)+0.50(110000)+0.20(-310000)=158000

EMV(Medium)=0.30(300,000)+0.50(129000)+0.20(-100000)=134500

EMV(Small)=0.30(200,000)+0.50(100000)+0.20(-32000)= 103600

EMV(No facility)=0

So a large facility has the highest expected monetary value.

EVPI=EVwPI(Expected value with perfect information)-EVwoPI(Expected value without perfect information)

EVwoPI=highest EMV=158000

Take best ouput in each column and multiply with its probability.

EVwPI=0.30(550000)+0.50(129000)+0.20(0)=229500

EVPI=229500-158000=71500 is the expected value of perfect information.

Now to calculate EOL. We first deduct from the max value of each column the columns value to arrive at table with regret values.

Facility type	Regret values
	Strong Market	Fair	Poor
Large	0	19000	310,000
Medium	250000	0	100,000
Small	350000	29000	32,000
No facility	550000	129000	0

EOL(Large)=0.30(0)+0.50(19000)+0.2(310000)=71500

EOL(Medium)=0.30(250000)+0.50(0)+0.20(100000)=95000

EOL(Small)=0.30(350000)+0.50(29000)+0.20(32000)=125900

EOL(No facility)=0.30(550000)+0.50(129000)+0.20(0)=229500

lowest expected oppurtunity loss is for large facility=71500

Min EOL decision= Max EMV decision as expected.

So the best decision would be to go with a large facility.

I believe all is answered. Happy learning.