1. Kirsten is trying to decide where to go for her well-earned vacation. She would like to camp, but if the weather is bad, she will have to go to a motel. Given the costs and probabilities of bad weather given below, which destination should she choose? Camping costMotel costProbability of bad weatherNevada$21.2$80.90.2Oregon$15.9$84.60.4California$30$950.1 a.California, because its EMV = $33.14b.Nevada, because its EMV = $33.14c.California, because its EMV = $36.5d.Any of the 3 choices.e.Oregon, because its EMV = $43.38f.Nevada, because its EMV = $43.38g.None of the 3 choices.h.Oregon, because its EMV is $36.50.

Formulae used: Expected monetary value (EMV)= Probability of outcome × Outcome valueProbability of good weather = 1-Probability of bad weather EMV = Camping cost× Probability of good weather + Motel × Probability of bad weatherSolution: EMV for Nevada = 0.8×21.2 + 0.2×80.9 =33.14 EMV for Oregon = 0.6×15.9 + 0.4×84.6 = 43.38 EMV for California = 0.9×30 + 0.1×95 = 36.5 Since the payoff value of Oregon is higher than other options, Kirsten should choose it.Thus EMV = 43.38 Therefore, the correct option is (e) Oregon, because its EMV = $43.38

Answered: 1. Kirsten is trying to decide where…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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Kirsten is trying to decide where to go for her well-earned vacation. She would like to camp, but if the weather is bad, she will have to go to a motel. Given the costs and probabilities of bad weather given below, which destination should she choose?

	Camping cost	Motel cost	Probability of bad weather
Nevada	$21.2	$80.9	0.2
Oregon	$15.9	$84.6	0.4
California	$30	$95	0.1

California, because its EMV = $33.14

Nevada, because its EMV = $33.14

California, because its EMV = $36.5

Any of the 3 choices.

Oregon, because its EMV = $43.38

Nevada, because its EMV = $43.38

None of the 3 choices.

Oregon, because its EMV is $36.50.

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