Question
The owner of a ski resort wants to decide how the resort should be run in the coming winter season. The resorts profits for this
The owner of a ski resort wants to decide how the resort should be run in the coming winter season. The resorts profits for this years skiing season will depend on the amount of snowfall during the winter. On the basis of prior experience, the probability distribution of snowfall and the resulting earnings are summarized below.
Amount of snowfall Probability Earnings
300 cm 0.3 $ 250 000
200 cm 0.15 $ 150 000
100 cm 0.25 $ 50 000
50 cm 0.20 $ 20 000
0 cm 0.10 $ -100 000 (loss)
The owner has recently received an offer from a larger hotel chain to rent the resort for the winter. If the owner decides to rent the resort to this larger hotel chain, they will earn a sure $ 60 000, whatever the amount of snowfall might be. Another choice for the owner is leasing snowmaking equipment for the season. If the owner decides to lease snowmakers to supplement the natural snowfall, the earnings for the season will be $ 260 000 minus the cost of leasing and operating the snowmaking equipment. The cost of the snowmaking equipment will be $ 23 000 if the natural snowfall is 300 cm, $ 60 000 if it is 200 cm, $ 120 000 if it is 100 cm, $ 200 000 if it is 50 cm, and $ 230 000 if it is 0 cm. Part A. (10 points) Build the consequences table for the hotel owners decision-making problem. Part B. (4 points) Determine what the owner should do, using the maximax method. Part C. (8 points) If the owner decides to operate the hotel without leasing snowmaking equipment, what would their expected earnings be? Part D. (8 points) What is the expected amount of snowfall in this ski resort (in cms)?
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