7. A cloth designer has produced a design of a T-shirt. She now has the choice of marketing the garment himself or of se

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7 A Cloth Designer Has Produced A Design Of A T Shirt She Now Has The Choice Of Marketing The Garment Himself Or Of Se 1 (66.67 KiB) Viewed 79 times

7. A cloth designer has produced a design of a T-shirt. She now has the choice of marketing the garment himself or of selling the design to a large manufacturer. The market is unpredictable. If the idea catches on, sales will be high and she will make a profit of $100,000 if she markets the garment himself. On the other hand, if sales are low, she will make a loss of $10,000. In selling the design she can negotiate a contract whereby even if sales are low she will make a profit of $20,000, but if sales are high the profit will only be $50,000. The designer estimates that the probability of high sales is 0.6, and therefore of low sales is 0.4. A firm of market research consultants specializes in T-shirts. They claim to conduct a survey whose record is such that, if the sales are high, they will predict 'high' with probability 0.7, and therefore predict 'low' with probability 0.3. Alternatively, if the sales are low, they will predict 'low' with probability 0.8 and 'high' with probability 0.2. Find the EVSI and EVPI.