half-wrong). Discussion Question 2.3 (banana loss function). Imagine you run a small banana shop. You buy bananas wholesale for 2 cents each ($0.02) and sell each for 40 cents ($0.40). The wholesaler delivers every Monday. Any bananas not sold by the next Monday spoil; you cannot sell them (they just go in the compost). Let y be the actual number of bananas that customers want to buy in some week. Let g be your guess, i.e., how many you bought wholesale on Monday. a) Consider the loss function L(y,g) = 0 if y = g, otherwise L(y,g) = 1 if y= g; that is, zero loss for a correct guess, loss of 1 for incorrect guess. Why isn’t that loss function appropriate? b) Why isn’t quadratic loss appropriate?
half-wrong). Discussion Question 2.3 (banana loss function). Imagine you run a small banana shop. You buy bananas wholesale for 2 cents each ($0.02) and sell each for 40 cents ($0.40). The wholesaler delivers every Monday. Any bananas not sold by the next Monday spoil; you cannot sell them (they just go in the compost). Let y be the actual number of bananas that customers want to buy in some week. Let g be your guess, i.e., how many you bought wholesale on Monday. a) Consider the loss function L(y,g) = 0 if y = g, otherwise L(y,g) = 1 if y= g; that is, zero loss for a correct guess, loss of 1 for incorrect guess. Why isn’t that loss function appropriate? b) Why isn’t quadratic loss appropriate?
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Consumer Choice And Elasticity
Section: Chapter Questions
Problem 2CQ
Related questions
Question
100%
half-wrong).
Discussion Question 2.3 (banana loss function). Imagine you run a small banana shop.
You buy bananas wholesale for 2 cents each ($0.02) and sell each for 40 cents ($0.40). The
wholesaler delivers every Monday. Any bananas not sold by the next Monday spoil; you
cannot sell them (they just go in the compost). Let y be the actual number of bananas
that customers want to buy in some week. Let g be your guess, i.e., how many you bought
wholesale on Monday.
a) Consider the loss function L(y,g) = 0 if y = g, otherwise L(y,g) = 1 if y= g; that
is, zero loss for a correct guess, loss of 1 for incorrect guess. Why isn’t that loss
function appropriate?
b) Why isn’t quadratic loss appropriate?
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