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.The number of states of nature for the payoff table is
A)2
B)3
C)4
D)It cannot be determined.

Question

Quizplus · Accepted Answer

The number of states of nature depends on the possible outcomes or events that can affect the decision, which in this case are the demand levels for the roses on Valentine's Day. There are three possible demand levels: low, medium, and high, which correspond to the probabilities of 0.3, 0.4, and 0.3, respectively, based on historical data. Therefore, there are three states of nature, and the corresponding payoff table can be constructed to determine the expected payoffs and optimal decision.

Blossom's Flowers Purchases Roses for Sale for Valentine's Day