2. In late 2020, with the COVID-19 pandemic being a major concern, a concert pro- moter...
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2. In late 2020, with the COVID-19 pandemic being a major concern, a concert pro- moter is planning a single performance of a distinguished pianist playing suites for keyboard written by G.F. Handel. Several venues are being considered, all of which have a grand piano, and are ac- cessible for those with physical challenges. Because of the pandemic, which causes a need for physical distancing, each venue can only admit 25% of its seating capacity. For example, while the Cathedral has a capacity for 1000 people in normal times, during the pandemic only 250 people may be admitted. Also, the need for cleaning each building has been increased because of the pandemic. Each venue charges a rental fee, plus a cleaning surcharge per person in attendance beyond a threshold number. For example, suppose they rent the Basilica, and 265 people show up. The threshold is 225, so they pay a cleaning surcharge based on 265-225-40 people. The seating capacities, rental fees, and cleaning surcharges are: Cleaning Surcharge Venue Capacity Rent Threshold per Person Church 800 $300 100 $3.00 Cathedral Concert Hall Basilica 1000 1200 $900 1400 $1300 $600 125 $3.75 200 $4.00 225 $3.25 All tickets sell for $60, but $12 of this is a ticket agency fee and taxes. The promotor believes that the demand will be as follows: 150 15%; 200 25%; 250 30%; 300 20%; and 350 10%. Aside from the aforementioned costs, there will be $9,000 required for professional fees, advertising, and so on. (a) Using Excel, make a payoff matrix to determine which venue the promoter should rent. All numbers mentioned in this question must be in their own cells, with the formulas in the other cells referencing these data cells. (b) Calculate the EVPI. 2. In late 2020, with the COVID-19 pandemic being a major concern, a concert pro- moter is planning a single performance of a distinguished pianist playing suites for keyboard written by G.F. Handel. Several venues are being considered, all of which have a grand piano, and are ac- cessible for those with physical challenges. Because of the pandemic, which causes a need for physical distancing, each venue can only admit 25% of its seating capacity. For example, while the Cathedral has a capacity for 1000 people in normal times, during the pandemic only 250 people may be admitted. Also, the need for cleaning each building has been increased because of the pandemic. Each venue charges a rental fee, plus a cleaning surcharge per person in attendance beyond a threshold number. For example, suppose they rent the Basilica, and 265 people show up. The threshold is 225, so they pay a cleaning surcharge based on 265-225-40 people. The seating capacities, rental fees, and cleaning surcharges are: Cleaning Surcharge Venue Capacity Rent Threshold per Person Church 800 $300 100 $3.00 Cathedral Concert Hall Basilica 1000 1200 $900 1400 $1300 $600 125 $3.75 200 $4.00 225 $3.25 All tickets sell for $60, but $12 of this is a ticket agency fee and taxes. The promotor believes that the demand will be as follows: 150 15%; 200 25%; 250 30%; 300 20%; and 350 10%. Aside from the aforementioned costs, there will be $9,000 required for professional fees, advertising, and so on. (a) Using Excel, make a payoff matrix to determine which venue the promoter should rent. All numbers mentioned in this question must be in their own cells, with the formulas in the other cells referencing these data cells. (b) Calculate the EVPI.
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a To create a payoff matrix in Excel we need to consider the potential outcomes for each venue based on the number of attendees and the associated cos... View the full answer
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