Question: Problem Description: A manufacturing company is considering developing its business through introduction of new products to the market. There exist three product options: Product 1,

Problem Description: A manufacturing company is

Problem Description: A manufacturing company is considering developing its business through introduction of new products to the market. There exist three product options: Product 1, Product 2 or Product 3. However, there are demand market uncertainties related to each product resulting in varying profits. Here is some further information about each product options: 1. Product 1: Fixed set-up cost is 2K. High demand with a probability 0.5, and you will earn 27K, Intermediate demand with a probability 0.3, and you will earn 19K; Low demand with 0.2 probability and you will earn 8K. 2. Product 2: Fixed set-up cost is 3K. High demand with a probability 0.6, and you will earn 25K, Intermediate demand with a probability 0.3, and you will earn 22K; Low demand with 0.1 probability and you will earn 10K. 3. Product 3: Fixed set-up cost is 5K. High demand with a probability 0.65, and you will earn 30K; Intermediate demand with a probability 0.25, and you will earn 25K; Low demand with 0.10 probability and you will earn 12K. Q2. Expected Value of Perfect Information - EVPI (25 points) There is an expert claiming that he knows about Product 2. What is the EVPI if you are considering to hire this expert for the estimation of the demand scenario for product 2 only? You will be paying 1 K if hiring this expert. Should you hire this expert? (Hint: This expert can only eliminate uncertainty related to the second product demand market. The expert can not help you with products 1 and 3.)

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