Use the expected value approach to recommend which alternative Seneca Hill Winery should follow in order to maximize expected annual profit.

EV$($Plant Chardonnay$)$

$42600$

Changed: Your submitted answer was incorrect. Your current answer has not been submitted.

EV$($Plant both grapes$)$

$57300$

EV$($Plant Riesling$)$

$59000$

The best decision is to plant

Chardonnay

Correct: Your answer is correct.

grapes.

$($d$)$

Suppose management is concerned about the probability assessments when demand for Chardonnay wine is strong. Some believe it is likely for Riesling demand to also be strong in this case. Suppose the probability of strong demand for Chardonnay and weak demand for Riesling is $0\mathrm{.}05$ and that the probability of strong demand for Chardonnay and strong demand for Riesling is $0\mathrm{.}40.$ How does this change the recommended decision? Assume that the probabilities when Chardonnay demand is weak are still $0\mathrm{.}05$ and $0\mathrm{.}50.$

EV$($Plant Chardonnay$)$

EV$($Plant both grapes$)$

$66400$

Changed: Your submitted answer was incorrect. Your current answer has not been submitted.

EV$($Plant Riesling$)$

The best decision is to plant

both

Correct: Your answer is correct.

grapes.

$($e$)$

Other members of the management team expect the Chardonnay market to become saturated at some point in the future, causing a fall in prices. Suppose that the annual profit projections fall to $$50,000$ when demand for Chardonnay is strong and Chardonnay grapes only are planted. Using the original probability assessments, determine how this change would affect the optimal decision.

EV$($Plant Chardonnay$)$

EV$($Plant both grapes$)$

Incorrect: Your answer is incorrect.

EV$($Plant Riesling$)$

The best decision is to plant

both

Correct: Your answer is correct.

grapes.