The owner of a ski lodge has been considering leasing several snowmobiles for the use of guests. The cost to lease a snowmobile is $20 per week from Snowmobile Incorporated company, but the company only lease it for a full season. The usual rental charge to the guests is $25 per week. Based on the experience of other lodges, four levels of demands of snowmobiles are possible, and their probabilities during the season are shown in the following table:

Number of snowmobiles demanded by guests Probability

7 0.10

8 0.25

9 0.45

10 0.20

a.Compute the payoffs for leasing 7, 8, 9, and 10 snowmobiles for each level of demand.

b.Construct a payoff table, indicating the events and alternative courses of action.

c.Compute the expected monetary value (EMV) for each action.

d.Compute the expected opportunity loss (EOL) for each action.

e.How many snowmobiles the ski lodge owner should lease? Why?