Bob Sparrow purchases steak from a local meatpacking house. Themeat is purchased on Monday at $2.00 per pound, and the shop sellsthe steak for $3.00 per pound. Any steak left over at the end ofthe week is sold to a local zoo for $0.50 per pound. The possibledemands for steak and the probability of each are shown in thefollowing table:
Demand (lbs.) Probability
20 0.2
21 0.3
22 0.5
Bob must decide how much steak to order in a week. Bob wants tomaximize expected value. What is his expected value when purchasingoptimally? [Hint: construct a payoff table for each of hisdecisions and each state of nature.] A) 20 B) 20.5 C) 20.25 D) 219.
What is Bob Sparrow’s Expected Value of Perfect Information? A)20.5 B) 1.3 C) 0.8 D) 1.05
