If you are a rationaldecision maker and want to maximize

Reference no: EM13615494

White Valley SkiResort is planning the ski lift operation for its new ski resort.Management is trying to determine whether one or two lifts will benecessary to maximize average long-term profit. The annual fixedcost to run the resort is $250,000 for one lift and $450,000 fortwo lifts. White Valley charges the customers $40 each to use theski lift. If the resort has one lift, the annual demand isestimated to be 40,000 customers (i.e. there is 40,000 customers ina year and each pay $40) for a good year and 25,000 for a bad year.If the resort has two lifts, the annual demand is estimated to be70,000 for a good year and 30,000 for a bad year. The probabilityof a bad year is 30%. [Hint: Calculate payoffs (profit) in eachscenario by subtracting cost (annual fixed operating cost) fromtotal revenue (# of customer per year x Price for each ski liftticket).]

If you are a rationaldecision maker and want to maximize the average/expected long-termprofit, how many ski lifts do you want to have at the resort?Explain in simple non-technical English. Show your work.

If you are an optimistic decision maker, how many ski lifts do youwant to have at your resort? Explain/why.

Reference no: EM13615494

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