You have room for up to two fruit-bearing trees in your garden. The fruit trees that can grow in your garden are either mango, orange, or guava. The cost of maintenance is TK 100 for a mango tree, TK 70 for an orange tree, and TK 120 for a guava tree. Your food bill will be reduced by TK 130 for each mango tree you plant, by TK 145 for each guava tree you plant, and by TK 90 for each orange tree you plant. You care only about your total expenditure in making any planting decisions. (a) What is the set of possible actions and related outcomes? (b) What is the payoff of each action/outcome? (c) Draw the associated decision tree. What will a rational actor choose? (d) Imagine that the reduction in your food bill is half for the second tree of the same kind. That is, the first mango tree still reduces your food bill by TK 130, but if you plant two mango trees your food bill will be reduced by TK 130 + TK 65 = TK 195, and similarly for guava and orange trees. What will a rational actor choose now?

You have room for up to two fruit-bearing trees in your garden. The fruit trees that can grow in your garden are either mango, orange, or guava. The cost of maintenance is TK 100 for a mango tree, TK 70 for an orange tree, and TK 120 for a guava tree. Your food bill will be reduced by TK 130 for each mango tree you plant, by TK 145 for each guava tree you plant, and by TK 90 for each orange tree you plant. You care only about your total expenditure in making any planting decisions. (a) What is the set of possible actions and related outcomes? (b) What is the payoff of each action/outcome? (c) Draw the associated decision tree. What will a rational actor choose? (d) Imagine that the reduction in your food bill is half for the second tree of the same kind. That is, the first mango tree still reduces your food bill by TK 130, but if you plant two mango trees your food bill will be reduced by TK 130 + TK 65 = TK 195, and similarly for guava and orange trees. What will a rational actor choose now?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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