Reconsider Prob. 16.2-2. Management of Silicon Dynamics now is considering doing full-fledged market research at a cost of $1 million to predict which of the two levels of demand is likely to occur. Previous experience indicates that such market research is correct two-thirds of the time. Assume that the prior probabilities of the two levels of sales are both 0.5.
(a) Find EVPI for this problem.
(b) Does the answer in part (a) indicate that it might be worthwhile to perform this market research?
(c) Develop a probability tree diagram to obtain the posterior probabilities of the two levels of demand for each of the two possible outcomes of the market research.
(d) Use the Excel template for posterior probabilities to check your answers in part (c).
(e) Find EVE. Is it worthwhile to perform the market research?