Question

Sally owns a food truck and sells lunch either in her home town or at a local resort. Lunch sales are dependent on the Mocation and daily weather. When she sells lunches at the resort, the profit is $160 per day when the weather is fair, $20 per day when the weather is foul. When she sells lunches in her home town, profits will be $80 when the weather is fair and $55 in when the weather is foul. For this particular case, on any given day, meteorologists suggest a 30% chance of foul weather. a) The correct decision tree for Sally is shown in b) To maximize the return, for lunch sales, Sally's decision should be to use the Expected monetary value for Sally = $ (enter your answer as a whole number).

Answer 1

a) Answer: Figure 3

Figure 1 is incorrect, as the profits shown for the resort are not mentioned correctly. the profit in case of fair weather is shown as 20, which should actually be 160.

Figure 2 is incorrect, as EMVs for resort and home are not mentioned correctly.

EMV for resort = ( 0.7 x 160) + ( 0.3 x 20) = 112 + 6 = 118

EMV for home = (0.7 x 80) + (0.3 x 55) = 56 + 16.5 = 72.5

In Figure 2, EMV for the resort is mentioned as 72.5, and EMV for home is mentioned as 118. So, Figure 2 is incorrect.

Figure 3 is the correct answer. It shows all profits, profits, and EMVs correctly.

b)

EMV for resort = ( 0.7 x 160) + ( 0.3 x 20) = 112 + 6 = 118

EMV for home = (0.7 x 80) + (0.3 x 55) = 56 + 16.5 = 72.5

EMV for the resort is higher. Therefore, to maximize the return, for lunch sales,  Sally's decision should be to use the resort.

Expected Monetary value for Sally = EMV for resort = $ 118