A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this
Question:
A farm owner 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 are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
1) Using the maximin approach, which action should the farm owner choose?
2) Using the maximam approach, which action should the farm owner choose?
3) Suppose the farmer's almanac predicts the probability of a good growing season this year to be 0.75. Compute the expected value for each action. Based on these results, which action should the farm owner choose?
4) What is the expected value of perfect information?
5) Compute the standard deviation for each action.
6) Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV for each action lead to the same choice as the expected value? Explain.
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1119036432
7th edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso