TABLE 19-1
The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature
-Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.Given 0.2,0.4,and 0.6 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal EOL for buying roses is

Question

TABLE 19-1
The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature  
-Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.Given 0.2,0.4,and 0.6 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal EOL for buying roses is

Quizplus · Accepted Answer

The expected profit for buying 100 dozen roses is (0.2)($20 - $10)(100) + (0.8)($5 - $10)(100) = $200.The expected profit for buying 200 dozen roses is (0.4)($20 - $10)(200) + (0.6)($5 - $10)(200) = $400.The expected profit for buying 400 dozen roses is (0.6)($20 - $10)(400) + (0.4)($5 - $10)(400) = $800.Therefore, the optimal EOL for buying roses is 400 dozen roses, which has an expected profit of $800.

TABLE 19-1 The Following Payoff Table Shows Profits Associated with a Set