A farmer is trying to decide if continuing to farm is the correct thing to do. Yields on his fields have been declining over the past several seasons. He has an offer on the table from a corporate farmer to lease his land for the season for $15,000. Whether or not he accepts this offer depends on how well his fields will produce and the market value of his crops. If yield is high, the farmer will make $50,000 and there is a 10% possibility of this occurring. If yield is medium, the farmer will make $20,000 and there is a 50% possibility of this occurring. If yield is low, the farmer will make $12,000 and there is a 40% possibility of this occurring. Draw a decision tree for this problem. What should the farmer do according to the decision tree? If the farmer could get more information that would help him predict his yield, what is the maximum amount that he should pay for this information?

A farmer is trying to decide if continuing to farm is the correct thing to do. Yields on his fields have been declining over the past several seasons. He has an offer on the table from a corporate farmer to lease his land for the season for $15,000. Whether or not he accepts this offer depends on how well his fields will produce and the market value of his crops. If yield is high, the farmer will make $50,000 and there is a 10% possibility of this occurring. If yield is medium, the farmer will make $20,000 and there is a 50% possibility of this occurring. If yield is low, the farmer will make $12,000 and there is a 40% possibility of this occurring. Draw a decision tree for this problem. What should the farmer do according to the decision tree? If the farmer could get more information that would help him predict his yield, what is the maximum amount that he should pay for this information?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 35P

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