A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation. It estimates the following probabilities for the respective levels of demand. If the bakery had perfect information about that day's demand,the expected value of perfect information is 60.

Question

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation.  It estimates the following probabilities for the respective levels of demand.  If the bakery had perfect information about that day's demand,the expected value of perfect information is 60.

Quizplus · Accepted Answer

The expected value of perfect information (EVPI) is the difference between the expected value with perfect information and the expected value without perfect information. In this case, the expected value without perfect information is the expected value of the payoff table, which is $100. Thus, the EVPI is $60 ($100 - $40). Therefore, the statement is true.

A Bakery Makes Fresh Donuts Every Morning