A farmer in Vancouver faces a dilemma. The weather forecast is for hot weather, and there is a 50% chance that the temperature this weekend will be too hot and destroy his entire flower garden, which is worth some $60,000. He can take two possible actions to try to alleviate his loss if the temperature rises (the objective is to maximize his expected flower value).First, he could use mulch which helps keep soil temperatures low. This would cost $3,000, but he could still expect to incur damage of approximately $27,000 to $32,000.Second, he can use shade cloth which offers partial and temporary protection from the sun. This method is more expensive ($6,000), and also more effective. With the shade cloth, he could expect to incur as much as $16,000 to $22,000 of the loss.Compare the farmers expected values for the three alternatives he has, considering the various possible loss scenarios for the mulch and the shade cloth. Which alternative would you suggest the farmer take? Why? (Use sensitivity analysis)

Sensitivity analysis is used when output change when other variables change. It is used by the…

Answered: A farmer in Vancouver faces a dilemma.…

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 20P: Alexander Industries is considering purchasing an insurance policy for its new office building in...

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A farmer in Vancouver faces a dilemma. The weather forecast is for hot weather, and there is a 50% chance that the temperature this weekend will be too hot and destroy his entire flower garden, which is worth some $60,000. He can take two possible actions to try to alleviate his loss if the temperature rises (the objective is to maximize his expected flower value).

First, he could use mulch which helps keep soil temperatures low. This would cost $3,000, but he could still expect to incur damage of approximately $27,000 to $32,000.
Second, he can use shade cloth which offers partial and temporary protection from the sun. This method is more expensive ($6,000), and also more effective. With the shade cloth, he could expect to incur as much as $16,000 to $22,000 of the loss.

Compare the farmers expected values for the three alternatives he has, considering the various possible loss scenarios for the mulch and the shade cloth. Which alternative would you suggest the farmer take? Why? (Use sensitivity analysis)

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