Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1 1 - 2 9 . MODEL THRESHOLDS AND PAYOFF MATRICES. Blanda Brothers is a produce processing company that specializes in fruits, with apple sales
MODEL THRESHOLDS AND PAYOFF MATRICES. Blanda Brothers is a produce processing company that specializes in fruits, with apple sales representing the majority of their revenue. Their main facility receives a daily shipment of apples, which are then sorted and shipped to grocery stores and to producers of apple jelly and juice, depending on the apple quality sweetness taste, color, etc. The acceptablequality apples are sold to grocery stores and lowquality apples are sold to apple processors. If a lowquality apple is sold to a grocery store, the apples are returned and Blanda must pay the stores a fee to compensate the store for lost sales and for the extra work of shipping the apples back.Blanda's reputation also suffers, affecting future business. Blanda has an algorithm to determine apple quality, but the algorithm is not perfect and misclassifies apples.The data science team presents their work to Cindy Hansen, the management accountant at Blanda, to help them choose between two cutoff prediction probabilities for lowquality apples of and Apples with a predicted probability above the cutoff probability are classified as low quality, and apples below the cutoff probability are classified as acceptable quality apples. The following confusion matrices are based on the validation sample.
Required
Cindy estimates that apples of acceptable quality result in a profit of $ per apple. She also knows that lowquality apples can be sold to juice companies at a profit of $ Finally, she estimates that the cost to Blanda of selling a lowquality apple to the grocery store as an acceptablequality apple is $ for each lowquality apple. Use this information to construct a payoff matrix as in Exhibit
Using Cindy's knowledge about the payoff of each outcome, which threshold should the team choose?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started