# 1. (50 points) Kelly Construction Company (KCC) is a condominium construction company in Delaware.

Question: 1. (50 points) Kelly Construction Company (KCC) is a condominium construction company in Delaware. The company must decide whether to purchase enough land to build a 50-unit, 100-unit, or 150-unit condominium complex. Many other complexes are currently under construction, so Kelly is unsure how strong demand for its complex will be. If the company isshow detail pleaseShow transcribed image text 100% (1 rating)Answer I provided you complete and corre…View the full answerTranscribed image text: 1. (50 points) Kelly Construction Company (KCC) is a condominium construction company in Delaware. The company must decide whether to purchase enough land to build a 50-unit, 100-unit, or 150-unit condominium complex. Many other complexes are currently under construction, so Kelly is unsure how strong demand for its complex will be. If the company is conservative and builds only a few units, it loses potential profits if the demand turns out to be high. On the other hand, many unsold units would also be costly to Kelly. The following table reports the decision alternatives: D₁ = Build 50 units, D₂ = Build 100 units, and D, Build 150 units, under various states of nature regarding demand for condominiums (low, medium, or high). Demand Decision alternatives Low Medium High D₁ \$400,000 \$500,000 \$600,000 D₂ 200,000 700,000 800,000 D₁ -200,000 1000,000 2,500,000 Probability 0.20 0.50 0.30 c. What is the optimal decision using the equally likely criterion. d. Suppose Kelly has been able to assign a probability of 0.20 for low demand, 0.50 for medium demand, and 0.30 for high demand scenarios above. Which decision will be optimal if the expected monetary value criterion is used? e. Compute the expected value of perfect information (EVPI). What does EVPI measure? Explain.