Dexter's Shell Owns His Own Waffle-Cone Business and Lives 50

question 6

Essay

Dexter's Shell owns his own Waffle-Cone business and lives 50 kms from a beach resort. The sale of Waffle-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $180 per day in fair weather, $40 per day in foul weather. At home, he will profit $110 in fair weather, $70 in foul weather. Assume that on any particular day, the weather service suggests a 40% chance of fair weather.
a. Construct Dexter's payoff table.
b. What decision is recommended by the expected value criterion?
c. What is the EVPI?

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Definitions:

Histogram

A graphical representation of the distribution of numerical data, usually showing the frequency of data within certain ranges.

Class Interval

A range of values in a dataset that is grouped together for the purpose of constructing a frequency distribution or histogram.

Frequency Distribution

A summary of data showing the number (frequency) of observations in each of several non-overlapping categories or bins.