Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested...

Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in shipping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability that UPS will go on strike and impact Sharp Outfits’ shipments.

a.  For which values of p, if any, does Sharp Outfits minimize its expected total cost by choosing to postpone shipping its customer orders via UPS?


b.  Suppose now that, at a cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the probability that this information indicates the occurrence of a UPS strike is 27.5%. If the purchased information indicates the occurrence of a UPS strike, the chance of a strike actually occurring is 0.105/0.275. If the purchased information does not indicate the occurrence of a UPS strike, the chance of a strike actually occurring is 0.680/0.725. Provided that p =0.15, what strategy should Sharp Outfits pursue to minimize its expected total cost?


c.  Continuing part b, compute and interpret EVSI when p = 0.15.


d.  Continuing part b, compute and interpret the EVPI when p = 0.15.