Andrew Thomas, a sandwich vendor at Hard Rock Cafe\'s annual Rockfest, created a

Question

Andrew Thomas, a sandwich vendor at Hard Rock Cafe's annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd) States of Nature (demand) Alternatives Large Stock Average Stock Big $22,000 Average Small $12,000 $16,000 $11,000 $6,500 Smal Stock 59 600 $7500 $4,000 The probablities associated with the states of nature are 0 20 for a big demand, 0.45 for an average demand and 0.35 for a small demand a) The altemative that provides Andrew Thomas the greatest expected monetary value (EMV) s Cick to select your answerts) and then click Check Answer

Explanation / Answer

Expected monetary value for each alternative:

Large stock =0.2*22000+ 0.45*12000+0.35*(-2500) = 8925

Average stock =0.2*16000+ 0.45*11000+0.35*(6500) = 10425

Small stock =0.2*9600+ 0.45*7500+0.35*(4000) = 6695

The alternative that provide Andrew Thomas the greatest expected monetary value(EMV) is Average stock with EMV of $ 10425.

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