Reference no: EM1347154

Q1) Brenda Kelley runs a specialty ski clothing shop outside of Boone, North Carolina. She must place her order for ski parkas before ski season because the manufacturer produces them in the summer. Brenda needs to determine whether to place a large, medium, or small order for parkas. The number of ski parkas sold will depend largely on whether the area has a heavy, normal, or light amount of snow during the ski season. The following table summarizes the payoffs Brenda expects to receive under each snow scenario.

Size of Order Heavy Normal Light
Large 10 7 3
Medium 8 8 6
Small 4 4 4

Table 1: Payoffs (in $1000s)

Brenda evaluates the probability of heavy, normal, and light snowfalls as 0.25, 0.6, and 0.15, respectively. So what must be size of the order you would suggest to Brenda? Justify why.