P(Average Game) = .40 P(Above Average Game) = .30 P(Exciting Game) = .10 Using the expected value criterion, determine how many commercials National Foods should purchase. Number of 30-second Perceived Game Excitement Commercials Purchased Dull Average Above Exciting Expected average value (0.20) (0.40) (0.10) (0.30) One -2(.20)= 3(.40)= 7(.30)= 2.1 13(.10)= 4.2 -.4 1.2 1.3 Two -5(.20)= 6(.40)= 12(.30)= 18(.10)= 6.8** -1 3.6 2.4 1.8 Three -9(.20)= 5(.40)= 2 13(.30)= 22(.10)= 6.3 -1.8 3.9 2.2 Commercials nation foods should This decision will be purchase two 30-second commercials. optimal over the long run. Based on the probabilities given here, determine the expected value of perfect information. The expected return with perfect information is .20(-2) + .40(6) + .30(13) + .10(22) = 8.1. So the expected return with perfect information is EVIP= 8.1 6.8 = 1.3. This represents the – gain in expected return resulting by knowing the probabilities of the ratings of the Super Bowl games. Therefore, if the information costs more than 1.3% of the commercial, don’t buy it.
P(Average Game) = .40 P(Above Average Game) = .30 P(Exciting Game) = .10 Using the expected value criterion, determine how many commercials National Foods should purchase. Number of 30-second Commercials Purchased Perceived Game Excitement Dull (0.20) Average (0.40) Above average (0.30) Exciting (0.10) Expected value One -2(.20)= -.4 3(.40)= 1.2 7(.30)= 2.1 13(.10)= 1.3 4.2 Two -5(.20)= -1 6(.40)= 2.4 12(.30)= 3.6 18(.10)= 1.8 6.8** Three -9(.20)= -1.8 5(.40)= 2 13(.30)= 3.9 22(.10)= 2.2 6.3 Commercials nation foods should purchase two 30-second commercials. This decision will be optimal over the long run. Based on the probabilities given here, determine the expected value of perfect information. The expected return with perfect information is .20(-2) + .40(6) + .30(13) + .10(22) = 8.1. So the expected return with perfect information is EVIP= 8.1 – 6.8 = 1.3. This represents the gain in expected return resulting by knowing the probabilities of the ratings of the Super Bowl games. Therefore, if the information costs more than 1.3% of the commercial, don’t buy it.
SampleDecisionAnalysisHomeworkI.docx