Question

Farmer McCoy can plant either corn or soybeans. The probabilities that the next harvest prices will go up, stay the same, or go down are .25, .30 and .45 respectively. If the prices go up, the corn crop will give a net profit of $30,000 and the soybeans will give a net profit of $10,000. If the prices remain unchanged, McCoy will have $0 profit/loss for both crops. But if the prices go down, the corn and soybeans crops will sustain losses of $35,000 and $5,000 respctively. (A) Represent McCoy's problem as a decision tree. (B) Which crop should McCoy plant?

Answer 1

Answer:

McCoy should plant soybeans

Step-by-step explanation:

Thinking process:

Let the two crops be corn and soybeans as indicated.

The profit margin for corn will be $ 30 000. However, the loss will be:

$ 35 000 - $ 30 000 = $ 5 000

For the soybean, the  profit margin will be $ 10 000.

The loss will be $ 5 000

The net balance will be given as: $ 5 000 - $ 10 000 = - $ 5 000. (This represents a gain)

Thus, soybean will be more profitable.