Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7.
a. Determine the expected profit of each alternative. Which alternative is best? Why?
b. Analyze the problem using a decision tree. Show the expected profit of each alternative on the
tree.
c. Compute the expected value of perfect information. How could the contractor use this
knowledge?
