1. Ace plans to operate a poultry farm.

He currently is deciding the capacity of this

farm. Its size could either be for 300, 450 or 500 chickens. In terms of market forecasts,
demand may be low, medium or high. The expected monthly income matrix for the
capacities and market forecasts is as follows:

Capacity Low Demand Medium Demand High Demand

300 chickens P85,000 P85,000 P85,000
450 chickens 40,000 130,000 130,000
500 chickens (25,000) 75,000 175,000

2. XYZ Condominium Corp. of Cebu City, recently purchased land and is attempting to
determine the size of the condominium development it should build. It is considering
three sizes of development: small d1; medium d2; and large d3. With the three levels of
demand- low (s1), medium (s2) and high(s3), the company’s management has
prepared the following profit payoff table: (25 points)

State of nature
Decision Alternatives Low ( ) Medium ( ) High ( )
– Small Condo 400,000 400,000 400,000
– Medium Condo 100,000 600,000 600,000
– Large Condo (300,000) 300,000 900,000

Required:

1. Assuming the probabilities for the state of nature are P(s1) = 0.20; P(s2) = 0.35 and
P(s3) = 0.45, what decision should XYZ Condominium Corp make?

2. What is the relevant income in XYZ’s decision?

3. At how much will the “Medium condo, high demand" payoff would be indifferent
between the "Medium condo" and "Large condo” decisions, given all other applicable
data input items remain the same?

4. Compute for the Expected Value of Perfect Information.

5. Suppose that before making a final decision, XYZ Condominium Corp is considering
conducting a survey to help evaluate the demand for the new condominium
development. The survey report anticipated to indicate one of the two levels of
demand: weak (W) or strong (S). The relevant probabilities are as follows: