Question
Ryan Palmer operates a hot dog cart at the local stadium every Saturday. It is currently Thursday, and Ryan needs to inform stadium management today
Ryan Palmer operates a hot dog cart at the local stadium
every Saturday. It is currently
Thursday, and Ryan needs to inform stadium management today whether he will set up
his hot dog cart inside or outside on Saturday. Ryan has watched the weather channel,
and the probability of rain on Saturday is 60%.
Each hot dog sells for $2.50 and the total variable cost of each hot dog is $0.80.
Ryan knows from past experience that he will likely sell the following number of hot dogs:
Rain No rain
Inside 1,500 800
Outside 700 2,200
Required:
a) Set up a pay-off table and determine whether Ryan should set up his hot dog cart
inside or outside on Saturday.
b) Assume that Ryan has the opportunity to hire a weather expert who can determine
with 100% certainty whether it will rain on Saturday. Calculate the most that Ryan
should be willing to pay this expert.
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