Question

35. Suntrek, a global apparel company, is adding a new supplier for denim fabric that it uses to manufacture denim jeans, and the suppliers it's considering are located near the ports of Shanghai, Mumbai, Manila, Santos, and Veracruz. A major factor in the company's decision is transportation and shipping costs, which are dependent on several factors including port traffic, container costs, and future oil prices. The following payoff table summarizes the total monthly shipping costs (in $100,000s) for the suppliers in each of the ports, given the future state of related logistics costs.

hi experts! i need some more help with my homework. actually i just need the answer for number 53. but because it is related to number 35 and 36. i hope you don't mind to help me solve all those three problems.
(p.s: number 35 and 36 already answered by some experts on the book solution) hope it will make you easier to solve number 53. thanks a lot ?

Answer 1

53

Expected value for Shanghai = 2.7*0.09+3.9*0.27+6.3*0.64 = 5.328
Expected value for Mumbai = 2.1*0.09+3.8*0.27+6.5*0.64 = 5.375
Expected value for Manila = 1.7*0.09+4.3*0.27+6.1*0.64 = 5.218
Expected value for Santos = 3.5*0.09+4.5*0.27+5.7*0.64 = 5.178
Expected value for Veracruz = 4.1*0.09+5.1*0.27+5.4*0.64 = 5.202

expected value without perfect information = Lowest expected value = 5.178 as we are considering cost as payoff

maximum amount they should pay = EVPI = expected value without perfect information-expected value with perfect information = 5.178-(1.7*0.09+3.8*0.27+5.4*0.64) = 0.543