Question
An orange grower in Florida faces a dilemma. The weather forecast is for cold weather, and there is a 50% chance that the temperature tonight
An orange grower in Florida faces a dilemma. The weather forecast is for cold weather, and there is a 50% chance that the temperature tonight will be cold enough to freeze and destroy the entire crop, which is worth some $50,000. He can take two possible actions to try to alleviate his loss if the temperature drops. First, he could set burners in the orchard; this would cost $20,000, but he could still expect to incur damage of approximately $5,000-$20,000. Second, he could set up sprinklers to spray the trees. If the temperature drops, the water would freeze on the fruit and provide some insulation. This method is cheaper ($17,500), but less effective. With sprinklers he could expect to incur as much as $10,000 to $25,000 of the loss with no protective cation.
Using a two-way sensitivity analysis, determine the optimal course of action for the grower from among the three alternatives he has (including no action alternative).
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