Problem: Expected Values (Payoff Tables) - HotDogs
You own the rights to sell hot dogs at the local ballpark, The weather network predicts the probability of rain at 60% for the next game coming up tomorrow. You have to decide today whether you will set upyour hot dog stand inside or outside. If you set up outside and it does not rain, you expect to sell 800 hotdogs, but if it rains you will only sell 200 hot dogs. If you set up inside and it does not rain you will sell300 hot dogs; if it rains, you will sell 700 hot dogs. Each hot dog generates a contribution margin of $2.00.
Required:
a. Where should you set up, inside or outside?
b. What is the most you would pay someone to predict (with 100% accuracy)tomorrow's weather?c. At what rain probability would you be indifferent between setting up insideor outside?