Calculate the expected value of perfect information

Assignment Help Operation Management
Reference no: EM13221947

Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area, but that dealer has several leasing options to accomadate a variety of driving patterns. All the leases are for 3 years and require no money at the time of signing the lease. The first option has a monthly clost of $330, a total mileage allowance of 36,000 miles (an average of 12,000 miles per year), and a cost of $0.35 per mile for any miles over 36,000. The following table summarizes each of the three lease options:

3 year lease Monthly cost Mileage Allowance Cost Per Excess Mile
Option 1 $330 36,000 $0.35
Option 2 $380 45,000 $0.25
Option 3 $430 54,000 $0.15

Beverly has estimated that, during the 3 years of the lease, there is a 40% chance she will drive an average of 12,000 miles per year, a 30% chance she will drive an average of 15,000 miles per year, and a 30% chance that she will drive 18,000 miles per year. In evaluating these lease options, Beverly would like to keep her costs as low as possible.

(a) Develop a payoff (cost) table for this situation.
(b) What decision would Beverly make if she were optomistic?
(c) What decision would Beverly make if she were pessimistic?
(d) What decision would Beverly make if she wanted to minimize her expected cost (monetary value)?
(e) Calculate the expected value of perfect information for this problem.

 

Reference no: EM13221947

Questions Cloud

Will price be higher or lower under an agreement in long run : Will price be higher or lower under such an agreement in long-run equilibrium than would be the case if firms didn't collude. Even in firms in a monopolistically competitive market collude successfully.
Explain shift to the left to achieve an equilibrium state : the system is not at equilibrium and will shift to the right to achieve an equilibrium state. not at equilibrium and will shift to the left to achieve an equilibrium state. at equilibrium. not at equilibrium and will remain in an unequilibrated sta..
Explain scientific method and describe the overall manner : Explain the scientific method and describe the overall manner in which you would apply it in your field of study or everyday life.
What are tradeoffs of technological products pharmaceutical : Place technological goods along the y-axis and pharmaceutical goods along the x-axis. Tradeoffs That Occur Between Pharmaceutical and Technological Products Pharmaceutical 50 45 35 20 0 Technological 0 2 4 6 8
Calculate the expected value of perfect information : Beverly has estimated that, during the 3 years of the lease, there is a 40% chance she will drive an average of 12,000 miles per year, a 30% chance she will drive an average of 15,000 miles per year, and a 30% chance that she will drive 18,000 mil..
Determine the molar mass of the unknown : sample of an unknown was dissolved in 10.7 g acetic acid. If the freezing point depression of the solution was 4.14°C, find the molar mass of the unknown
Identify and define these religions : What is one similarity that crosses at least 3 of the 4 Eastern religions learned this week? What is one aspect of each that is different from the others? How do these similarities and differences help identify and define these religions?
How successful is the eu in achieving its goals : Write about the EU. Define it. What is its purpose? What is its history? How successful is the EU in achieving its goals? Describe the 3 most interesting items you find on the site.
Explain what caloric content does the fructose contribute : If a fresh golden delicious apple weighing 4.30 (120 ) contains 17.0 of fructose, what caloric content does the fructose contribute to the apple?

Reviews

Write a Review

 

Operation Management Questions & Answers

  Elucidate what others might be included

Are the factors Gardner selected for evaluation reasonable also complete. Elucidate what others might be included.

  Describe the basic elements of the project life cycle

Describe the basic elements of the project life cycle. Why is an understanding of the project life cycle relevant for understanding project management?

  Way to deliver some furniture to a customer

Cary, Dean, and Madeline are partners in a furniture store. While on his way to deliver some furniture to a customer

  How cultural diversity can affect the effective functioning

Explain how cultural diversity can affect the effective functioning of virtual teams operating in a global economy

  Linear programming staffing problem

South Central Utilities has just announced the August 1 opening its second nuclear generator at its Baton Rou, Louisiana, nuclear power plant. Propose this staffing problem using LP. Solve problem. How many trainees should begin each month?

  Illustrate what would you suggest

ou have received a call from the manager of a firm where you helped set up a forecasting system. Illustrate what would you suggest.

  Which approaches to employee development are used

Which approaches to employee development are used at Patagonia? How does employee development at Patagonia contribute to the company's strategies relating to employee retention

  What annual rate of interest

Every month thereafter, this person makes a cash contribution of $676 to the account, what annual rate of interest is being earned on this fund?

  Elucidate operations people return jobs to the us

Using that as a challenge, illustrate what can we as 'operations people' do to return jobs to the US, slow or even stop the outflow, make the US competitive again and sustain our organizations.

  How many boxes of lettuce should the supermarket

Past history says that tomorrow's demand for lettuce averages 230 boxes with a standard deviation of 33 boxes. How many boxes of lettuce should the supermarket purchase tomorrow?

  Formulating the null hypothesis

After receiving some complaints from the readers, a university newspaper decides to redesign its front page. Two new formats, B and C, were developed and tested against the current format, A.

  Joe''s car company

Joe's Car Company can make its own engines for $1050 or buy them from the outside from a defunct Yugoslavian auto plant for $1000 per engine. Inventory holding cost is $800 per engine per year, and the cost of ordering, receiving etc. is $8000 per or..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd