Question

An artist travels to craft fairs all summer long. She must book her booth at a June craft show six months in advance and decide if she wishes to rent a tent for an extra ?$550 in case it rains on the day of the show. If it does not? rain, she believes she will earn ?$3200 at the show. If it? rains, she believes she will earn only ?$2200?, provided she has a tent. If she does not have a tent and it does? rain, she will have to pack up and go home and will thus earn? $0. Weather records over the last 10 years indicate there is a 0.4 probability of rain in June. Complete parts? (a) and? (b) below. (a) Prepare a profit matrix. ?(Do not include the? $ symbol in your? answer.) ?(b) What should the artist do to maximize her expected? revenue? A.She should not rent the tent because the expected value is ?$_____. . B.She should rent the tent because the expected value is ?$_____

Answer 1

Profit matrix:-

	No rain	Rain
With tent	3200 – 550 = 3650	2200 – 550=2650
Without tent	3200	0
Probability of rain	0.6	0.4

Her expected profit when she have a tent :-

EP = 0.6(3200-550) + 0.4(2200-500) = 2250

Her expected profit when she does not have a tent :-

EP = 0.6(3200) + 0.4(0) = 1920

A. She should not rent the tent because the expected value is $1920.

B. She should rent the tent because the expected value is $2250