Question
According to the Agricultural Department, a wheat farmer finds that his annual profit is $80,000 if the summer weather is typical, $50,000 if the weather
According to the Agricultural Department, a wheat farmer finds that his annual profit is $80,000 if the summer weather is typical, $50,000 if the weather is unusually dry, and $20,000 if there is a severe storm that destroys much of his crop. Weather bureau records indicate that the probability is 0.70 of typical weather, 0.20 of unusually dry weather, and 0.10 of a severe storm. Let X denote the farmer's profit next year. (a) Construct a table with the probability distribution of X. (b) What is the probability that the profit is $50,000 or less? (c) Find the mean of the probability distribution of X. Interpret. (d) Suppose the farmer buys insurance for $3000 that pays him $20,000 in the event of a severe storm that destroys much of the crop and pays nothing otherwise. Find the probability distribution of his profit. Find the mean and summarize the effect of buying this insurance.
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