Question

QUESTION 6 A farmer is deciding whether to take precautions to "weather-proof his farm (in case mega typhoons hit it before harvest), "disease-proof" it (in case diseases come out before harvest), do both to "full proof it (in case both typhoons & diseases hit it), or simply not take precautions and hope that no untoward event happens. The expected payoffs for each course of action under the four scenarios are presented below. Typhoons Diseases Typhoons No wl Typhoons & occur Diseases Diseases Weather Proofing 100,000 50,000 45,000 110,000 Disease Proofing 65,000 90,000 60,000 100.000 Full-proofing 90,000 80,000 70,000 90,000 No precautions 75,000 60,000 20,000 120,000 hit crops a. What are the EMVs for the different options. Assume a probability of 0.3 for typhoons only to occur, 0.3 for diseases only to occur. 0.2 for both typhoons & diseases to occur an 0.2 for neither typhoons & diseases to occur. Weather-proofing 110,000 Disease-proofing 100,000 Full-proofing 90,000 No precautions 120,000 Weather-proofing 40,000 Disease-proofing 35,000 b. 'Full-proofing 30,000 No precautions 50,000 Weather-proofing 45,000 Disease-proofing 60,000 Full-proofing 70,000 No precautions 20,000 Weather-proofing 76,000 Disease-proofing 78,500 Full-proofing 83,000 No nragautions 68,500 d.

Answer 1

EMV is Expected Monetary Value it is calculated by multiplying the payoffs with the respective probabilities and summing them up.

EMV for weather Proofing

0.3*100000+0.3*50000+0.2*45000+0.2*110000 = 76000

EMV for disease Proofing

0.3*65000+0.3*90000+0.2*60000+0.2*100000=78500

EMV for Full Proofing

0.3*90000+0.3*80000+0.2*70000+0.2*90000= 83000

EMV for No Precautions

0.3*75000+0.3*60000+0.2*20000+0.2*120000= 68500

Hence Option D is correct. Also, the one with highest EMV is the suggested decision.

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