Question
Three possibilities are being considered for cultivation: only Chardonnay grapes, only Riesling grapes, or both. The farmer has decided that for planning purposes it would
Three possibilities are being considered for cultivation: only Chardonnay grapes, only Riesling grapes, or both. The farmer has decided that for planning purposes it would be appropriate to consider only two possibilities of demand for each type of wine: high and low. With the two possibilities for each type of wine it was necessary to evaluate four possibilities.
Riesling Demand | ||
Chardonnay Demand | Low | High |
Low | 0.05 | 0.5 |
High | 0.25 | 0.2 |
Revenue projections show an annual profit of $20,000 if only Chardonnay grapes are planted and demand for this wine is low, and $70,000 if only Chardonnay is planted, and demand is high. If you plant only Riesling grapes, the annual profit projection is $25,000 if demand is low for these grapes, and $45,000 if demand is high.
Only if the farmer decides to plant both types of grapes, the annual profit projections are shown in the following table:
Riesling Demand | ||
Chardonnay Demand | Low | High |
Low | $ 22,000.00 | $ 40,000.00 |
High | $ 26,000.00 | $ 60,000.00 |
a) Develop a decision tree. b) What is the best investment decision that allows you to maximize the annual profit expected of the farmer?
Please answer the questions with an excel if possible.
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