Problem:

The local operations manager for the IRS must decide whether to hire 1, 2, or 3 temporary workers. He estimates that net revenues will vary with how well taxpayers comply with the new tax code. The following pay table is given in thousands of dollars (e.g. 50 - $50,000). The number of workers are 1, 2, 3, the respective payoff for low compliance are 50, 100 and 150, for medium compliance are 50, 60, 70, and for high compliance 50, 20 and -10.

Required:

If he thinks the chance of low, medium, and high compliance are 20%, 30% and 50% respectively, what is the expected value of perfect information? Solve the problem and show all work.