6. Consider the following situation: A decision maker must decide between two options, creatively named "option 1" and "option 2." Each can result in a success with a profit of $100 or a failure with a loss of $50. Option 1 costs $30, but it has a relatively high chance of success of 80%. Option 2 costs nothing, but the chance of success is 50%. Success 0.8 $100 option 1 Failure 0.2 -$50 Success 0.5 $100 option 2 3 Failure 0.5 -$50 Which of the following is correct: A) An expected value maximizing DM will choose option 1, which has an EV of $40 B) An expected value maximizing DM will choose option 1, which has an EV of $70 C) An expected value maximizing DM will choose option 2, which has an EV of $75 D) An expected value maximizing DM will choose option 2, which has an EV of $25 7. The butcher at the small Kroger (the one on University City Boulevard) buys T-bone steaks from a local meatpacking warehouse. The meat is purchased on Monday at a price of $10/steak and is sold to Kroger's customers for $20/steak. Any steak left over at the end of the week is sold to VT Dining Services for $5/steak. The possible demands and the probability of each are shown in the following table: Demand 10 Probability 0.2 20 0.5 30° 0.3 The butcher must decide how much steak to order in a week. The butcher wants to maximize expected value. What is his expected value when purchasing optimally? [Hint: construct a payoff table for each of his decisions and each state of nature.] A) 170 B) 100 C) 187.5 D) 165 10:53 8. What is the butcher's expected value of perfect information? [Recall: the expected value of perfect information is the maximum amount the decision maker would be willing to spend to learn the true state of nature.] A) 37.5 B) 40 C) 45 D) 210