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Lisa just inherited a vineyard from a distant relative in

Lisa just inherited a vineyard from a distant relative. In good years (when there is no rain during harvest season) she earns R100 000 from the sale of grapes from the vineyard. If the weather is poor she loses R20 000. Lisa's estimate of the probability of good weather is 60%.

i. Calculate the expected value and the variance of Lisa's income from the vineyard.

ii. Lisa is risk averse. Ethan a grape buyer, offers Lisa a guaranteed payment of R70 000 each year in exchange for her entire harvest. Will Lisa accept this offer? Explain

iii. Why might Ethan make such an offer?

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Microeconomics: Lisa just inherited a vineyard from a distant relative in

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