CLO 1: (6 points)

1. Ikea is considering three locations for their new grand store to be constructed in 2021: Sharjah, Ras Al Khaimah, and Abu Dhabi. The profit of each store depends on future demand for the products. Ikea is considering three possibilities of high demand, medium demand, and low demand for the demand for its products in 2025 and the corresponding profits (in million dirham) are shown in the following table.

		Demand
Location	High	medium	low
Sharjah	140	90	35
Ras Al Khaimah	70	130	95
Abu Dhabi	30	-20	180

Note: negative sign means loss

Answer the following questions:

1. Mention the states of nature in this question? (1 mark)

2. If you were a pessimistic person, what would your decision be?

(2 marks)

3. Form a regret (opportunity loss) table for the above problem.

(2 marks)

4. Based on the regret table, what is your decision? (1 mark)

5. Which city would an optimistic person choose? (1 mark)

2. Suppose that IKEA management has now information on the probability that each states of nature will happen, as given in the bottom row of the following table.

		Demand
Location	High	Medium	Low
Sharjah	140	90	35
Ras Al Khaimah	70	130	95
Abu Dhabi	30	-20	180
Probability	0.3	0.5	0.2

Note: negative sign means loss

1. Using Expected Monetary Value (EMV) approach, which decision would you recommend to the management? How much will be the expected profit? (2 marks)

2. Calculate the Expected Value of Perfect Information (EVPI)? (2 marks)