Question: Fenton and Farrah Friendly, husband and wife car dealers, are going to open a new dealership. They have offers from a foreign compact car company, a U.S. producer of full-sized cars, and a truck company. The success of each type of dealership will depend on how much gasoline is available during the next few years. The profit from each type dealership given the availability of gas is shown in the following payoff table (in $ thousands).

Gasoline Availability

Shortage Surplus

Compact cars 300 150

Full-sized cars -100 600

Trucks 120 170

a. Determine the best decision using the following decision criteria.

A. Maximax

B. Maximin

C. Hurwicz (a = 0.7)

D. Equal likelihood

E. Minimax regret

b. A trade journal predicts the availability of gasoline during the next few years as 60% shortage, 40% surplus. Determine the best decision using expected payoff (EMV) and expected regret (EOL).

c. What is the expected value of perfect information about the availability of gasoline?

d. Determine the risk profile for the max emv alternative.

e. Determine the posterior probabilities using Bayes’ rule.

f. Develop a decision tree for this situation.

g. What is their optimal decision strategy and expected payoff?

h. What is the value of the analyst's information?