Homework 7: Economic Analysis III, IV Due noon Monday 10/26 CSCI 510, Fall 2020 30 points The MedFRS project has selected Company L to develop, produce, and field test the First Responder Workstations (FRWs), and train the first-responder personnel in their use. Company L has identified two candidate approaches for developing and producing the FRWs. The Bold approach B will give them a profit of $600K if it succeeds, but a loss of $100K if it fails. The Conservative Approach C will give them a profit of $200K for sure. 1. (12 points). Construct the payoff matrix for the decision situation. Determine the best decisions and payoffs under the Maximin rule, the Maximax rule, and the Laplace rule. Determine the breakpoint probability of Bold approach success above which the Bold approach will be preferable. 2. (12 points). Determine the Expected Value of Perfect Information (EVperfect info); the payoff if Company L had perfect information about the success or failure of the Bold approach, assuming that the original success or failure probabilities were equally likely at 0.5 each. Determine the Expected Value of No Information (EVno info); the payoff if Company L had no information about the success or failure of the Bold approach, assuming that the original success or failure probabilities were equally likely at 0.5 each. Determine the Expected Value of Acquiring Perfect Information (EVPI): the maximum investment in acquiring information on the success of the Bold approach that would be worth doing. 3. (6 points). Company L also identifies two levels of prototyping that would buy information to reduce the risk of proceeding with no information. Prototype X would cost $20K and reduce the risk of B failing from $100K to $50K. Prototype Y would cost $40K and reduce the risk from $100K to $20K. Compute the Risk Reduction Leverage (RRL) for Prototypes X and Y, and identify which is the better investment. Grading Notes To earn points, must show the equations used and show your work in obtaining the answers! Be sure to specify the units of your values, where they apply (such as, PM, $, K, etc.). Remember to maintain 3+ significant digits throughout the calculations and in the final answers to earn points.