Alternatives Low Medium High Max Min

Location 1 210000 165000 115000 210000 115000

Location 2 200000 165000 150000 200000 150000
Location 3 135000 190000 222000 222000 135000

a
Alternatives Low Medium High Max
Location 1 210000 165000 115000 210000
Location 2 200000 165000 150000 200000
Location 3 135000 190000 222000 222000

Optimistic 222000 Maximax

Location 3

b
Alternatives Low Medium High Min
Location 1 210000 165000 115000 115000
Location 2 200000 165000 150000 150000
Location 3 135000 190000 222000 135000

Pessimistic 150000 Minimax

Location 2

c 0.33 0.33 0.33

Alternatives Low Medium High Probability
Location 1 210000 165000 115000 163333
Location 2 200000 165000 150000 171667
Location 3 135000 190000 222000 182333
EMV
Equal Likelyhood 182333
Location 3

d 0.60 0.30 0.10

Alternatives Low Medium High Probability
Location 1 210000 165000 115000 187000
Location 2 200000 165000 150000 184500
Location 3 135000 190000 222000 160200
EMV
Equal Likelyhood 187000
Location 1

e
d 0.60 0.30 0.10
Alternatives Low Medium High
Location 1 210000 165000 115000
Location 2 200000 165000 150000
Location 3 135000 190000 222000

Highest 210000 190000 222000

EV|PI 205200

EVPI 18200
f
It seems that $ 18200 is the cost of not having perfect information it also depicts that the
potential reason behind this is not having perfect information.
t also depicts that the
Alternatives High Demand Low Demand
Expand 325 35
Do not Expand 150 100

a
High Demand Low Demand EMV Expand EMV Not Expand
0 1 35 100
0.1 0.9 64 105
0.2 0.8 93 110
0.3 0.7 122 115
0.4 0.6 151 120
0.5 0.5 180 125
0.6 0.4 209 130
0.7 0.3 238 135
0.8 0.2 267 140
0.9 0.1 296 145
1 0 325 150

Expansion VS Non Expansion

350

300

250

200

150

100

50

0
0 0.2 0.4 0.6 0.8 1 1.2

EMV Expand EMV Not Expand

The Probability till 0.3 of high demand states that the store should not expand
and if the probability goes above 0.3 it can be seen that the store should
expand. Hence 0.3 is the point of intercection between the two alternatives.
a

Payoff table
Case A Case B Case C Case D
Probability 0.1 0.3 0.5 0.1
Demand 6 7 8 9

Cost 45
Price 95
Salvage 0

Options 1 2 3 4
Production 6 7 8 9
b Sales
Production 6 7 8 9
6 300 395 490 585
7 255 350 445 540
8 210 305 400 495
9 165 260 355 450

Case A Case B Case C Case D Weighted Values

Option 1 300 395 490 585 452
Option 2 255 350 445 540 407
option 3 210 305 400 495 362
Option 4 165 260 355 450 317

The Recommendation is to produce 6 units