The marketing vice president feels the probability of 0.25 that demand for wooden toys will be high, 0.4 that demand will be moderate, and 0.2 that demand will be low. He decided to use a forecasting model that will predict the behavior of the market towards wooden toys. The forecasting model can result in three possible outcomes – outstanding, good, and fair.

	State of Nature
Model Result	High	Medium	Low	Failure
Outstanding	0.95	0.05	0.05	0.02
Good	0.03	0.90	0.10	0.08
Fair	0.02	0.05	0.85	0.90

1	What should be the maximum amount you would be willing to pay for the forecasting model, such that you would prefer to use it before deciding on actions to take on the current capacity?
2	Find the EPPI.
3	Is it worthwhile to use a forecasting model, assuming that the forecasting model would cost 5,437?
	Find the EVSI.
4	Is it worthwhile to use a forecasting model, assuming that the forecasting model would cost 10,642?
	Find the ENGS.

Answer rating: 100% (QA)

1 The maximum amount the company should be willing to pay for the forecasting model is 002 This is b... View the full answer