Question
The ice cream producer considers the size of ice cream production . His profit depends on the weather. If he manufactures big amount of ice
The ice cream producer considers the size of ice cream production . His profit depends on the weather. If he manufactures big amount of ice cream and weather is bad, he shall bear additional cost from accepting returns from distribution. On the other hand - if he produces small amount of ice cream and weather is good, the produces will bear opportunity cost. In each case he shall achieve the lower profit. Based on his experience the producer prepared the following pay-off matrix:
Weather | Probability | Small amount | Medium amount | Big amount |
Bad | 0.2 | 1000 | 800 | 500 |
Average | 0.5 | 700 | 900 | 800 |
Nice | 0.3 | 450 | 750 | 1100 |
Recommend what amount of ice cream the producer should manufacture
using expected values method.What amount should he produce?
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