Decision Making Based on Long-Range Weather Forecasts

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)?