CWD Winter Inc is considering entering the snowplowing business for the coming w
ID: 3388929 • Letter: C
Question
CWD Winter Inc is considering entering the snowplowing business for the coming winter season. CWD can purchase either a snowplow blade attachment for the station's pick-up truck or a new heavy-duty snowplow truck. CWD has analyzed the situation and believes that either alternative would be a profitable investment if the snowfall is heavy. Smaller profits would result if the snowfall is moderate, and losses would result if the snowfall is light. The
following profits have been determined.
CWD is willing to pay $50 for additional information on the weather
which can be normal or unreasonable.
Decision Alternatives
Moderate,
Heavy, s1
s2
Light, s3
Blade Attachment, d1
3500
1000
-1500
New Snowplow, d2
7000
2000
-9000
Probability
0.4
0.3
0.3
Conditional Probability For A Given State of Nature
Test Results
Heavy
Moderate
Light
Normal
0.7
0.8
0.9
Unreasonable
0.3
0.2
0.1
That is P (N/H) =0.7; P (N/M) =0.8, P(N/L) =0.9, P (U/H) =0.3; P (U/M) =0.2, P(U/L) =0.1
After you have computed the revised probabilities round to two decimal places
Construct the appropriate decision tree to help CWD make the appropriate decisions. This tree must be constructed in logical order with labels and net payoffs It also includes the revised probabilities (5 marks
Fold back the decision tree (5 marks) to determine the best strategy for CWD; you must state this strategy (1 mark). What is the final expected profit?( 1 mark)(7 marks)
What is the expected value of sample information(EVSI)- the most that should be paid to seismic testing firm for the test?( 1 mark)
d) Calculate the expected value of perfect information (EVPI)- the most that should be paid to an expert for perfect prediction of the uncertain outcomes.(1 mark)
e) What is the efficiency of sample information?(1 mark)
following profits have been determined.
CWD is willing to pay $50 for additional information on the weather
which can be normal or unreasonable.
Decision Alternatives
Moderate,
Heavy, s1
s2
Light, s3
Blade Attachment, d1
3500
1000
-1500
New Snowplow, d2
7000
2000
-9000
Probability
0.4
0.3
0.3
Explanation / Answer
CWD Winter Inc is considering entering the snowplowing business for the coming w