Bob Sparrow purchases steak from a local meatpacking house. The meat is purchased on Monday at...

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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 Sparrowâ€™s Expected Value of Perfect Information? A)20.5 B) 1.3 C) 0.8 D) 1.05

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3.8 Ratings (360 Votes)

The possible outcomes for profit for each initial stock values of 20 21 and 22 are computed here as Estock of 20 203 2 20 as all will be sold See Answer

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