Question

hit crops QUESTION 3 1. 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 w/ 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 What are the relevant values for the different options under the Maximax Criterion? Weather-proofing 45,000 Disease-proofing 60,000 a. Full-proofing 70,000 No precautions 20,000 Weather-proofing 100,000 Disease-proofing 110,000 b. Full-proofing 90,000 No precautions 120,000 Weather-proofing 110,000 Disease-proofing 100,000 Full-proofing 90,000 No precautions 120,000 Weather-proofing 100,000 Disease-proofing 65,000 d. Full-proofing 90,000 No precautions 75,000

Answer 1

Maximax Criterion: Using this criterion, we select the alternative that provides maximum possible payoff.

So, if we choose Weather Proofing, the maximum payoff is 110,000 ( when we get No Typhoons & Diseases)

if we choose Disease Proofing, the maximum payoff is 100,000 ( when we get No Typhoons & Diseases)

if we choose Full-proofing, the maximum payoff is 90,000 ( when we get either Typhoon or No Typhoons & Diseases)

if we choose No precautions, the maximum payoff is 120,000 ( when we get No Typhoons & Diseases)

So, the corresponding values for these 4 courses of action, are 110,000; 100,000; 90,000 and 120,000 respectively. These are best possible payoffs in each course of action.

Hence the answer is C.

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If we make our decision using Maximax criterion, we would go with No precautions, since it has hightest possible payoff.