1. [25 Points] Martha has a Vineyard which she can use for two purposes that year: tourism and wine production (the tourists steal the grapes so she cannot do both). If she produces wine and the weather turns out to be good, she generates a profit of $25,000. If she produces wine and the weather is bad, she generates a profit of $5,000. If she dedicates her vineyard to tourism and the weather is good, she generates a profit of $15,000. If she dedicates her Vineyard to tourism and the weather is bad, she generates a profit of $10,000. The probability that the weather is good is only 124. a) Draw Martha's decision tree, assuming that she can only make her choice about what to use the land for before she knows what the weather will be. (4) b) If Martha were risk neutral, how would she use her Vineyard? (4) c) You observe Martha producing wine. What can you conclude about her preferences? (4) d) If Martha were risk neutral, what would be her maximum willingness to pay for a perfectly accurate weather forecast that would allow her to make a contingent decision what to do with the land? (4) e) Martha now has a third option (but no perfectly accurate weather forecast): to rent her land for the year at $1 1,000 profit. The rent does not depend on what the weather will be that year, which is unknown at the time the lease is signed. What would Martha do if she were risk-neutral? Riskaverse? Risk-loving? That is, which landuse choices are consistent with each of these riskattitudes? (9)