Question

Easy questions and quick!

Information

James Jordan of Jordan's Printing in Atlanta must decide to either accept a contract for a government printing job or fly to Seattle to bid on a brochure. Capacity constrains prohibit him from doing both jobs, and he must decide on the government contract before the bidding process starts. He estimates the payoff table in terms of net dollar return as shown below.

   Do Not get
   Brochure job Get Brochure job
Accept Government Contract $1000 $1000
Accept Brochure Job -$1000 $4000

His current estimate of the probability that he gets the brochure job is 0.3.

Question 1 (1 point)

What is the expected value of the brochure job?

Your Answer:

Question 2 (1 point)

If he can get inside information about the brochure job for free, his expected payoff will be $1200. What is the value of the expected value of sample information (EVSI)?

Your Answer:

Question 3 (1 point)

If there is perfect information about whether or not he is going to get the brochure job, what is the expected payoff?

Your Answer:

Question 4 (1 point)

What is the value of the expected value of perfect information?

Your Answer:

Question 5 (1 point)

What is the efficiency of the inside information mentioned in question 2? Round your answer to two decimal places. For example, 0.12.

Your Answer:

Question 6 (1 point)

He can get another inside information from a different source, and its asking price is $350. With this information, the expected payoff should be at least $____.

Your Answer

Question 7 (1 point)

Let P(J) be the probability that he gets the brochure job. What is the smallest value of P(J) at which James is indifferent toward both alternatives?

Your Answer:

Answer 1

Solution

The payoff table is given as

	Do Not get Brochure job (Ac)	Get Brochure job (A)
Accept Government Contract (B)	$1000	$1000	$2000
Accept Brochure Job (Bc)	-$1000	$4000	$3000
	$0	$5000	$5000

(1) Let the event get brochure job is denoted by A then

Probability of get brochure job p(A) = 0.3

Probability of Do Not get Brochure job p(A^c) = 0.7

Therefore, the expected value of the brochure job is

= p(A)*$5000 + p(A^c)*0

= 0.3*$5000

=$1500

(2)