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    Decision Making Based on Long-Range Weather Forecasts

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    I need answers and calculations for below questions:
    a) On the basis of the information given, determine:
    (i) The course of action which will maximize expected profits;
    (ii) The expected value of perfect information and discuss the practical implications of your result.
    (b) A long-range weather forecast suggests that next summer's weather conditions will, in general, be cold and wet. The reliability of the forecast is indicated by the following probabilities which are based on past performance:
    p(cold, wet conditions forecast when weather will be hot and dry)=0.3
    p(cold, wet conditions forecast when weather will be mixed)=0.4
    p(cold, wet conditions forecast when weather will be cold and wet)=0.6

    In the light of the long-range weather forecast, should the company change from the course of action you recommended in (a)?

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    Solution Preview

    Brainmass Decision making Tutorial - 560004

    Your question is reproduced below:

    The managers of a soft drinks company are planning their production strategy for next summer. The demand for their products is closely linked to the weather, and an analysis of weather records suggests the following probability distribution for the June to August period:

    Weather conditions Probability
    Hot and dry 0.3
    Mixed 0.5
    Cold and wet 0.2

    The table below shows the estimated profits ($000s) which will accrue for the different production strategies and weather conditions:

    Weather conditions
    Production strategy Hot and dry Mixed Cold and wet
    Plan for high sales 400 100 −100
    Plan for medium sales 200 180 ...

    Solution Summary

    The decision making based on long-range weather forecasts. The course of actions which will maximize expected profits are given.