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An arable farmer is thinking of sowing scientifically modified crops next year She believes that if she did so her profits would be £75000 compared to £50000 if she sowed unmodified crops

An arable farmer is thinking of sowing scientifically modified crops next year. She believes that if she did so her profits would be £75,000, compared to £50,000 if she sowed unmodified crops. A neighbouring farmer has made it clear that if his crops are contaminated he will demand compensation. The arable farmer guesses the probability of contamination to be 40%. In the event that the neighbouring farmer claims compensation there is a 30% chance that the arable farmer would have to pay £25,000 in compensation and a 70% chance she would have to pay £50,000 in compensation.

(a) Construct a decision tree and use it to advise the arable farmer.

(b) An expert puts the probability that there will be contamination of the crops of the neighbouring farmer at 60%. Should the arable farmer change her strategy in the light of this information?

Jul 23 2020 View more View Less

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