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Q. Dick Holliday is not sure illustrating what he should do. He can build either a large video rental section or a small 1 in his drugstore. He can also gar additional information or simply do nothing. If he gars additional information, results could suggest either a positive or a negative market. Holliday believes that re is a fifty-fifty chance that information will be positive. If rental market is favourable, Holliday will earn $15,000 with a large section or $5,000 with a small. Within an unfavourable video-rental market, explain however, Holliday could lose $20,000 with a large section or $10,000 with a small section. Without gathering additional information, Holliday approximates that probability of a favourable rental market is 0.7. A positive report from study would increase probability of a favourable rent market to 0.9. Furthermore, a negative report from additional information would decrease probability of a favourable rental market to 0.4. Of course, Holliday could forget all se numbers and neither builds video sections nor gars additional information. Illustrate what is your advice to Holliday? Illustrate what is expected value of perfect information?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M9309985

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