A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows.
$5015030\begin{array} { | l | r | r | r | } \hline \text { Profit } & { \text { Light } } & \text { Medium } & { \text { Heavy } } \\\hline \text { Probability } & 0.18 & 0.52 & 0.3 \\\hline \text { Wind-up } & 70 & 20 & 120 \\\hline \text { Pneumatic } & 80 & 90 & 100 \\\hline \text { Electrical } & 50 & 150 & 30 \\\hline\end{array}$ a. What is the EMV of each decision alternative?
b. Which action should be selected?
c. What is the expected value with perfect information?
d. What is the expected value of perfect information?

Question

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows.

5015030\begin{array} { | l | r | r | r | } \hline \text { Profit } & { \text { Light } } & \text { Medium } & { \text { Heavy } } \\\hline \text { Probability } & 0.18 & 0.52 & 0.3 \\\hline \text { Wind-up } & 70 & 20 & 120 \\\hline \text { Pneumatic } & 80 & 90 & 100 \\\hline \text { Electrical } & 50 & 150 & 30 \\\hline\end{array}

a. What is the EMV of each decision alternative?
b. Which action should be selected?
c. What is the expected value with perfect information?
d. What is the expected value of perfect information?

Zybrea Knight · Accepted Answer

Final Answer :  A  Wind-up  59 20 120  Pneumatic  91.2 80 100  Electrical  96 30 150  Maximum  96 80 150   < -Expected value WITH perfect   C  128.4  information   B Electrical  96 < − -Best expected value  < −  Expected value OF perfect   D  32.4  information  \begin{array}{|l|r|r|r|}\hline  &   &   &  \\hline 	ext { Wind-up }  &  59  &  20  &  120 \\hline 	ext { Pneumatic }  &  91.2  &  80  &  100 \\hline 	ext { Electrical }  &  96  &  30  &  150 \\hline 	ext { Maximum }  &  96  &  80  &  150 \\hline   & &  	ext {  < -Expected value WITH perfect } \	ext { C } & 128.4 & 	ext { information }\\hline 	ext { B Electrical }  &  96 & < - 	ext {-Best expected value } \\hline  &   & < - 	ext { Expected value OF perfect } \	ext { D }  &  32.4  & 	ext { information }\\hline\end{array}  Wind-up   Pneumatic   Electrical   Maximum   C   B Electrical   D  ​ 59 91.2 96 96 128.4 96 32.4 ​ 20 80 30 80   < -Expected value WITH perfect   information  < − -Best expected value  < −  Expected value OF perfect   information  ​ 120 100 150 150 ​

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