EMV Calculation Quiz for Decision Making
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Questions and Answers

What does EMV stand for in the context of the given text?

  • Estimated Market Value
  • Expected Monetary Value (correct)
  • Expected Market Value
  • Estimated Monetary Value

    • According to the provided text, how is the EMV calculated?

  • By adding all payoffs together
  • By multiplying the payoff with the probability of each state of nature and summing them up (correct)
  • By taking the average of all payoffs
  • By only considering the payoff of the first state of nature

    • In the Thompson Lumber scenario, which alternative has the highest EMV?

  • The EMVs are all equal
  • Construct a large plant
  • Construct a small plant (correct)
  • Do nothing

    • What does EVPI stand for as mentioned in the text?

    <p>Estimated Value of Perfect Information</p> Signup and view all the answers

    How is EVPI calculated based on the given text?

    <p>EVPI = Average EMV - Maximum EMV</p> Signup and view all the answers

    What does EVwPI represent in the context of Expected Value of Perfect Information?

    <p>Expected Value with Perfect Information</p> Signup and view all the answers

    What does EVPI stand for in the context of decision analysis?

    <p>Expected Value of Perfect Information</p> Signup and view all the answers

    In the given scenario, what is the maximum Thompson Lumber should pay for additional information?

    <p>$60,000</p> Signup and view all the answers

    Which state of nature has the highest payoff in the decision table with perfect information?

    <p>Construct a large plant in a favorable market</p> Signup and view all the answers

    Based on the provided data, what is the Expected Monetary Value (EMV) of 'Do nothing'?

    <p>$0</p> Signup and view all the answers

    What is the formula to calculate Expected Value (EVwPI) according to the information given?

    <p>(Best payoff for each state of nature) x (probability of each state of nature)</p> Signup and view all the answers

    What does EVwPI represent in the decision-making process?

    <p>Expected Value with Perfect Information</p> Signup and view all the answers

    What is the Expected Value of Perfect Information (EVPI) for the given scenario?

    <p>$60,000</p> Signup and view all the answers

    What is the maximum amount Thompson should be willing to pay for additional information?

    <p>$60,000</p> Signup and view all the answers

    What is the Expected Opportunity Loss (EOL) for constructing a small plant?

    <p>$60,000</p> Signup and view all the answers

    If the minimum EOL is used as the decision criterion, which alternative should be chosen?

    <p>Construct a small plant</p> Signup and view all the answers

    What is the purpose of sensitivity analysis in decision analysis?

    <p>To examine how the decision might change with different input data</p> Signup and view all the answers

    If the probability of a favorable market increases, what will happen to the EVPI?

    <p>The EVPI will decrease</p> Signup and view all the answers

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