continuing from the previous problem.... given the lease decision percentages: a) determine the best decision using EXPECTED VALUE: 1-year 2-year 3-year 4-year 5-year b) Compute the expected value of perfect information for the Willow Cafe. b1) Show the formula you used to arrive at this value: c) Explain what this value (EV of perfect information) means and how such information might be obtained.

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ct.uconn.edu/ultra/courses/_93678_1/cl/outline Question Completion Status: QUESTION 1 The Willow Caf is located in an open-air mall. Its lease expires this year and the restaurant owner has the option of signing a 1. 2. 3. 4., or 5-year lease. However, the owner is concerned about recent energy price increases (including the price of gasoline) which affect virtually every aspect of the restaurant operation, including the price of food items and materials, delivery costs, and its own utilities. The restaurant was very profitable when energy prices were lower, and the owner believes if prices remain at approximately their current level profits will still be satisfactory; however, if prices continue to rise he believes that he might be forced to close. In these latter circumstances a longer-term lease could be a financial disaster, but with a shorter-term lease the mall landlord could always rent the restaurant's space out from under it when the lease expires. Thus, the restaurant owner's estimates of future profits must also reflect the possibility that the lease will not be renewable. The following payoff table summarizes the owner's profit (and loss) estimates for each future state of nature of energy prices (over a five-year period): Energy Prices Lease Decision Decrease.17 Same 34 1-year $156,000 $93,000 2-year 427,000 150,000 3-year 642,000 319,000 4-year 933,000 473,000 5-year 1,228,000 516,000 Determine the best decision using each of the following criteria (125 each): Increase .49 $16,000 -42,000 -171,000 --337,000 -551,000 a. Maximax (tell me the value and which lease decision choosing) 1228000 5-year b. Maximin (tell me the value and which lease decision choosing) 16000 1-year c. Equal likelihood: C1- (show me the equation you are using pick for one of the lease decision alternatives) (156000-93000+16000)/3 C2 - (which lease decision did you choose, and what was the value) 5-year 397666.6667 d. Hurwicz (a = .65) Click Save and Submit to save and submit. Click Save All Answers to save all answers. SN 02 - which lease decision did you choose, and what was the value) 5-year 605350 e. Minimax regret el- show me the equation you are using, plck for one of the lease decision alternatives) 516000-93000 e2-(which lease decision did you choose, and what was the value) 423000 3-year QUESTION 2 1 points S. continuing from the previous problem... given the lease decision percentages: a) determine the best decision using EXPECTED VALUE: 1-year 265,000 2-year 535,000 3-year 790,000 4-year 1,069,000 5-year 1,193,000 b) Compute the expected value of perfect information for the Willow Cafe. b1) Show the formula you used to arrive at this value: C) Explain what this value (EV of perfect information) means and how such information might be obtained