Answer to Question #209894 in Statistics and Probability for Rajib

Question

The manager of the greeting card section of Harvey's department store is considering her order for a particular line of holiday cards. The cost of each box cards is $3 each box will be sold for $5 during the holiday season. After the holiday season, the cards will be sold for $2 a box. The card section manager believes that all leftover cards can be sold at that price. The estimated demand during the holiday season for the cards, with associated probabilities, is as follows:

Demand (boxes)

25

26

27

29

30

Probability

0.10

0.15

0.30

0.20

0.15

0.10

Develop the payoff table for this decision situation and compute the expected value for

each alternative and identify the best decision.

b. Compute the expected value of perfect information.

Answer 1

The payoff table for the above distribution is-

The best expected value is 8.1 and we get When the demand is 27.

(b) The expected value of perfect information is the sum of all the expected values of the paticular demand =27.45