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(a) Determine the villager's optimal fishing strategy if they know that the current runs at random 60% of the time and fails to run the remaining 40% of the time.

(a) Determine the villager's optimal fishing strategy if they know that the current runs at random 60% of the time and fails to run the remaining 40% of the time.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The economy of a small, remote village located on an island off the coast of Africa is based on fishing the waters of the local seas. Individuals who fish the waters typically choose between one of three fishing routes: The inside route, which consists of fishing the waters 0-5 miles from shore; the middle route, which consists of fishing the waters 5-15 miles from shore; and the outside route; which consists of fishing the waters 15-25 miles from shore. The primary obstacle to the villagers is the current of the local seas, which is unpredictable over even short time intervals and makes fishing the outside route incredibly dangerous when it (the current) runs. While fishing the outside route is dangerous on account of the current, the inside route is largely protected from the current. The value of fishing the outside route is in the quality (in both variety and size) of the fish-driving the value of the fish available from the inside and middle routes down at the local markets that are available when the current does not run. The average value of the fish from fishing each route-accounting for the costs of the route depending on whether the current runs are provided below. • Inside route: $1200 dollars when the current runs and $0 when the current does not run. • Middle route: $900 when the current runs and $600 when the current does not run. • Outside route: A loss of $1200 when the current runs and a gain of $1500 when the current does not run. (a) Determine the villager's optimal fishing strategy if they know that the current runs at random 60% of the time and fails to run the remaining 40% of the time.
Transcribed Image Text:The economy of a small, remote village located on an island off the coast of Africa is based on fishing the waters of the local seas. Individuals who fish the waters typically choose between one of three fishing routes: The inside route, which consists of fishing the waters 0-5 miles from shore; the middle route, which consists of fishing the waters 5-15 miles from shore; and the outside route; which consists of fishing the waters 15-25 miles from shore. The primary obstacle to the villagers is the current of the local seas, which is unpredictable over even short time intervals and makes fishing the outside route incredibly dangerous when it (the current) runs. While fishing the outside route is dangerous on account of the current, the inside route is largely protected from the current. The value of fishing the outside route is in the quality (in both variety and size) of the fish-driving the value of the fish available from the inside and middle routes down at the local markets that are available when the current does not run. The average value of the fish from fishing each route-accounting for the costs of the route depending on whether the current runs are provided below. • Inside route: $1200 dollars when the current runs and $0 when the current does not run. • Middle route: $900 when the current runs and $600 when the current does not run. • Outside route: A loss of $1200 when the current runs and a gain of $1500 when the current does not run. (a) Determine the villager's optimal fishing strategy if they know that the current runs at random 60% of the time and fails to run the remaining 40% of the time.
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