Reference no: EM13185835
from past experience, a wheat farmer living in Manitoba, Canada finds that his annual profit (in Canadian dollars) is $80,000 if the summer weather is typical, $50,000 if the weather is unusually dry, and $20,000 if there is a severe storm that destroys much of his crop.
Weather bureau records indicate that the probability is 0.70 of typical weather, 0.20 of unusually dry weather, and 0.10 of a severe storm. In the next year, let X be the farmer's profit
A) What is the probability that the farmer's profit is $50,000 or more?
B) What is the probability that he profit is $50,000 or less?
C) Find the mean of the probability distribution of X. Interpret
Suppose the farmer buys insurance for $3000 that pays him $20,000 in the event of a severe storm that destroys much of the crop, and pays nothing otherwise. Find the probability distribution of his profit . Find the mean, and summarize the effect of buying this insurance.
Hint: If the farmer purchases insurance and there is a severe storm that destroys most of his crop, then the farmer will get $25,000 insurance money, in addition to the $20,000 that he would make if a severe storm destroyed most of his crop.
Hint: If the farmer purchases insurance, the cost of the insurance has to be considered in determining his profit, regardless of what the weather is like that year.
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