What is the expected value of the brochure job

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Reference no: EM132233767

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

Bid on the Brochure Job -$1000 $4000

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

1. What is the expected value of the brochure job?

2. 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)?

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

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

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

6. The inside information that he was able to get for free is no longer available. Instead, he can get inside information from a different source for $350. With this information, the expected payoff should be at least $____.

7. 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?

Reference no: EM132233767

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