Expert answer:Respond to Classmates Discussion Post in Statistic

Expert answer:RESPOND TO CLASSMATES STATISTICS POST USING THE FOLLOWING DIRECTIONS:First response: Choose a classmate’s post and review the decision analysis table. Add to this table by choosing a risk level for each state of nature (assign a probability value to each).Calculate the EMV for each alternative.Discuss which alternative is best based on the best (maximum) EMV.Calculate the Expected Value with Perfect Information (EVwPI).Calculate the EVPI.Discuss how much money your classmate should pay for perfect information.POST 1:I am the business owner for my personal business, “The El-parasol!” I have bikes in various locations around town. Business is doing very well and I am considering expanding my business to our neighboring town.The three alternatives would be:Expand fully to neighboring town with 3 new bikesPilot the expansion with just 1 new bikeStay status quo – do not expandThe tree states of nature would be:Serious demand for good nutritionModerate demand for good nutritionNobody cares about good nutritionOn a good day, I sell about $280 in smoothies per bike and it costs about $80 for the electricity and staffing. Thus, a net income of about $200 per day.On a moderate day, I sell about $180 in smoothies per bike and it still costs about $80 for electricity and staffing. Thus, a net income of about $100 per dayOn a poor day, I sell about $30 in smoothies per bike and it still costs about $80 for electricity and staffing. Thus, a net loss of about $50 per dayI will set up my decision table based on the above profit/losses per smoothie bike.ProfitGood nutritional demandModerate nutritional demandPoor nutritional demandprobability3 new bikes600300-1501 new bike200100-500 new bikes000 For decision analysis with uncertainty, I will choose to use the Optimistic and Equally Likely strategies.The Optimistic (Maximum) decision is to build 3 new bikes with a possibly payoff of $600 per day.For the equally likely strategy, I take the average payoff for each alternative. I can do this, by setting the probability for each state of nature to be 1/3 ≈ 0.33. The Equally Likely decision is still to build 3 new bikes with a possibly payoff of $200 per day.

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