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Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Market...

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Question

General Management

Dollar Department Stores has received an offer from HarrisDiamonds to purchase Dollar's store on Market Street for $120,000.Dollar has determined probability estimates of the store's futureprofitability, based on economic outcomes, as: P($80,000) = 0.2,P($100,000) = 0.3, P($120,000) = 0.1, and P($140,000) = 0.4.

part a :

Not considering probabilities, based on each of the followingcriteria, should Dollar sell the store?

1 a. Optimistic approach (Maximax)

1 b. Conservative approach (Maximin)

Part B:

Now use the given probabilities and based on each of thefollowing criteria, should Dollar sell the store?

B 1. Expected Monetary Value (EMV)

B 2. Expected Opportunity Loss (EOL)

Part C:

Determine the Expected Value of Perfect Information (EVPI).

Part D:

A marketing firm has offered to forecast the market with 100%accuracy at a cost of $10,000. Should the offer be accepted? Why orwhy not.

Please go into depth and show formulas and how you got to thesolution.

Answer & Explanation Solved by verified expert
4.5 Ratings (921 Votes)
aA1Maximax optimistic approach takethe alternative which gives the maximum of the maximum payoffsThe best decision is Dont sellA2Maximin    See Answer
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