Question

10.3.1. Beach Cafe Financial Expectations ic Assume we consider to open a Beach Cafe. From business estimates, we calculated that the profit of the Beach Cafe on a normal weather day would be $2,000. On an y, more customers come and the profit rises to $3.000. However, if the weather is bad, practically no customers will come and the Beach Cafe will lose $700 per day. We will estimate the probabilities of different weather from historical data assuming that the local climate has not changed for that period of time. bly Hels Expected Value for Beach Cafe Profit on Probabilty ng 0.50 he Possible Scenarios (Events) Scenario 1: "Normal Weather Scenario 2: "Excellent weather Scenario 3: "Bad weather Profit $2,000 $3,000 -$700 0.20 0.30 cin How to make a decision whether this business is good or not?

Answer 1

Profits on normal weather $2000 Profuts on. Excellent Weather $3000 Profits On Bad Weather" • -$700 Also Probabilities of coch weitere weather are also givehi e 0.5, 0.2 0.3 respectively P. (2) Profits Scenario I "Normal weather" os I 2000 3000 Sonario 2 "Excellent weath Bad Weather" 0.2 0.3 1- 700 Scenario 3 To make decision we have to find Expected leofuts = E(P)-0-5 X 2000 +.052 x 3000 -0.3X too & 1000 + 600-210 - 1600-210 $1390 So it will be profitable, so business decision is good as Bloch cafe will have expected frofits of SHOT ON MI AI 1390 MI DUAL CAMERA