Write down the expected loss for each decision strategy

Assignment Help Microeconomics

Reference no: EM131777576

Question: PLEASE USE @RISK AND PRECISION TREE PROGRAMS IN EXCEL

An orange grower in Florida faces a dilemma. The weather forecast is for cold weather, and there is a 50% chance that the temperature tonight will be cold enough to freeze and destroy his entire crop, which is worth some $50,000. He can take two possible actions to try to alleviate his loss if the temperature drops. First, he could set burners in the orchard; this would cost $5,000, but he could still expect to incur damage of approximately $15,000 to $20,000. The estimated loss is $17,500. Second, he could set up sprinklers to spray the trees. If the temperature drops, the water would freeze on the fruit and provide some insulation. This method is cheaper. The cost is $2,000, but it is less effective. With the sprinklers, he could expect to incur as much as $25,000 to $30,000 of the loss with no protective action. The estimated loss is $27,500.

Complete the following tasks.

(1) Construct a decision tree to capture the above scenario.

Note that your tree should include the following considerations if any.

- We use the negative sign (-) for the cost, the expenses, cash outflow, etc.

- We use the positive sign (+) for the revenue, profit, cash inflow, etc.

- Your tree will be able to generate the Cumulative Chart that includes the curves of all the possible decision strategies.

(2) Write down the number of decision strategies that you can find from your tree.

(3) Write down the expected loss for each decision strategy.

(4) Generate the risk profile for the decision tree. The risk profile only includes the Cumulative Chart.

(5) Generate the two-way sensitivity analysis between the burners and the sprinklers. Set the steps = 50.

(6) Explain which optimal decision strategy between the burners and the sprinklers should be chosen based upon the results from (3) to (5).

Reference no: EM131777576

Questions Cloud

Draw the game in strategic form : Two players play a game to split $4. Each player will simultaneously write down an amount (in whole dollars) between $0 and $4. If the sum of the two amounts.

Apply principle of criminal law to criminal justice practice : In the scenario listed below there are at least four alleged crimes and at least one possible civil action.

Discuss irb document may impact the selection of a research : Discuss IRB document may impact the selection of a research population, research setting, and/or research design. Use the resources to support your answer.

Each outlet to determine their human resources needs : Design a detailed 3–4 page questionnaire you could use to seek information from the managers of each outlet to determine their human resources needs.

Write down the expected loss for each decision strategy : An orange grower in Florida faces a dilemma. The weather forecast is for cold weather, and there is a 50% chance that the temperature tonight will be cold.

Compute amounts of any liability for compensated absences : Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2010, and 2011

Installed work cell for its line of led traffic signal lamps : Durabright wants to establish kanbans to feed a newly installed work cell for its line of LED traffic signal lamps.

What are the different levels of diversification firms : What are the different levels of diversification firms can pursue by using different corporate level strategies

Calculating the implicit cost of running the business : Penelope has recently started a printing business in Duluth. She had to pay a fee to obtain a trade license from the Minnesota government and took a loan.

User Account

All Pages