A small government contractor has a simple decision to make. There is a 60% chance that a new project will be funded by the city. The contractor is certain that her company will be awarded the job if it is funded. Successful completion of the job would pay $100,000.

The trouble is that the job is fairly big with a short deadline. She could start working on the job before it is offered. It would cost about $40,000 to start the project now, and she would lose all that money if the new project is not funded. Or, she could wait to see if the job is funded. Then it would be a rush job and would cost $60,000 to complete, but she wouldn't lost any money if the new project isn't funded.

What is the best choice based on Expected Monetary Value (EMV)?

She could pay an additional $2,000 now to a consultant to find out whether or not the new project will be funded. What is the expected value of this perfect information (EVPI)?

Perform economic calculations for each possible outcome.

Answer rating: 100% (QA)

To determine the best choice based on Expected Monetary Value EMV we need to calculate the expected value for each decision and compare the results Op... View the full answer