Find Expected Values, Standard Deviations and Return to Risk Ratios

question 24

Multiple Choice

Find expected values, standard deviations and return to risk ratios.
-A farm owner in upstate New York who grows summer vegetables (e.g. tomatoes)
Must decide whether to employ additional pickers this season. If he does, he could hire
Either migrant workers or local teenagers who need summer employment. The migrant
Workers are more experienced, faster, but more expensive. Although the teenagers will
Work for less, they lack experience and tend to damage plants and produce. His profits
Depend on the growing season as shown below. Suppose the farmer's almanac predicts
The probability of a good growing season this year to be .75. If the farmer is risk averse,
He would

• A) hire migrant workers.
• B) hire teenagers.
• C) do not do any extra hiring.
• D) make the same decision as he would using the expected value approach.
• E) give up farming.

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Definitions:

Additional Duties

Extra charges or taxes imposed on imports and exports, often as a tool to regulate trade.

Consumer Bill of Rights

A set of policies enacted to safeguard consumer rights, ensuring they are informed, safe, and have the ability to voice grievances.

Golden Rule

An ethical principle suggesting that one should treat others as oneself would wish to be treated, widely accepted across various cultures and religions.

Caveat Emptor

The legal concept of “let the buyer beware” that was pervasive in the American business culture prior to the 1960s.