A farmer is considering to plant A or B for the next year. If there is not a frost next year, he will get $5000 return for planting A, and get $3000 return for planting B. If there is a frost next year, he will get $500 return for planting A, and get $2000 return for planting B. According to the historic frost data, there are 15 frosts in the last 50 years. Suppose that the farmer is risk neutral. 1: What will the farmer plant if he does not buy the frost forecast? 2: If the accuracy of frost forecast is only 0.9, what is the maximum amount that the farmer will pay for the frost forecast? 3: What is the EVPI?
A farmer is considering to plant A or B for the next year. If there is not a frost next year, he will get $5000 return for planting A, and get $3000 return for planting B. If there is a frost next year, he will get $500 return for planting A, and get $2000 return for planting B. According to the historic frost data, there are 15 frosts in the last 50 years. Suppose that the farmer is risk neutral. 1: What will the farmer plant if he does not buy the frost forecast? 2: If the accuracy of frost forecast is only 0.9, what is the maximum amount that the farmer will pay for the frost forecast? 3: What is the EVPI?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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A farmer is considering to plant A or B for the next year. If there is not a frost next year, he will get $5000 return for planting A, and get $3000 return for planting B. If there is a frost next year, he will get $500 return for planting A, and get $2000 return for planting B. According to the historic frost data, there are 15 frosts in the last 50 years. Suppose that the farmer is risk neutral.
1: What will the farmer plant if he does not buy the frost
2: If the accuracy of frost forecast is only 0.9, what is the maximum amount that the farmer will pay for the frost forecast?
3: What is the EVPI?
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