Question 3 20 pts QUESTION 3 Chong & Choi Enterprises is considering investing in real estate. They must decide between investing in an apartment building (A1), office building (A2), or a warehouse (A3). The future economic conditions will determine the profit Chong & Choi will make. Following is a payoff table. STATE OF NATURE Good Economy (E1) Poor Economy (E2) DECISION ALTERNATIVES (A1). (A2) (A3) 500,000 1.000.000 300,000 300,000 -400,000 100,000 Probability of poor economic condition is estimated to be 0.40. 1 Using the expected value approach determine the optimal decision. 2. What is the optimal decision strategy if perfect information is available? Determine the expected value of perfect information 3. Chang & Choi is considering whether it is worthwhile to get some kind of economic forecast before making the final decision. Chong & Chol can purchase economic forecast from Sloppy Joe Associates (SJA) for $20,000. Following is the past record of SJA in forecasting future economic conditions. P{F2/E1) - 0.20 P(F1/E2) - 0.10 F1 - good economic forecast F2 - poor economic forecast E1 - good economic condition, and E2 = poor economic condition Let 1. What is the optimal decision it Chong & Choi purchase economic forecast? 2. What is the expected value? 3. What is the expected value of the economic forecast? 4. What is the efficiency of the economic forecast? 5. Should Chong & Choi purchase economic forecast if it cost $20,000