A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm$$s capacity.

The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below.

Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand to be: P $($low$)=\mathrm{.}3$ and P $($high$)=\mathrm{.}7.$

NEXT YEAR'S

DEMAND

Alternative Low High

Do nothing $ $50*$ $ $60$

Expand $2080$

Subcontract $4070$

$*$ Profit in $ thousands.

a$-1.$ Determine the expected profit of each alternative. $($Enter your answers in thousands.$)$

a$-2.$ Which alternative is best?

multiple choice

Do nothing

Expand

Subcontract

c$.$ Compute the expected value of perfect information