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1)For the following problems, calculate: Scenario:  The economy is bad and a weak demand is likely

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1)For the following problems, calculate:

2. Scenario:  The economy is bad and a weak demand is likely.  Think about, even in this situation, when a large complex should still be built.

p(s₁) = 0.3            p(s₂) = 0.7

	s1	s2	EV
d1	11	10	10.3
d2	14	6	8.4
P(x)	0.3	0.7

 

 

3. Scenario:  We are unable to get a prediction of the demand, so we go with 50/50.  Think about how close EV(d₁) is to EV(d₂) and how this influences the problem.

 

P(s₁) = 0.5          p(s₂) = 0.5

	s1	s2	EV
d1	5	-1	2
d2	14	-8	3
P(x)	0.5	0.5

 

4. Scenario: We are unable to get a prediction of demand, so we go with 50/50.  Think about the high risk involved with d₂.

 

P(s₁) = 0.5            p(s₂) = 0.5

	s1	s2	EV
d1	10	3	6.5
d2	17	-10	3.5
P(x)	0.5	0.5

 

 

5. Scenario: We are almost certain of a strong demand, with probability 0.9.  Think about how this influences the cutoffs.

P(s₁) = 0.9            p(s₂) = 0.1

	s1	s2	EV
d1	10	8	9
d2	12	-1	5.5
P(x)	0.9	0.1