## Related questions with answers

Suppose management is concerned about the probability assessments when demand for Chardonnay wine is strong. Some believe it is likely for Riesling demand to also be strong in this case. Suppose that the probability of strong demand for Chardonnay and weak demand for Riesling is 0.05 and that the probability of strong demand for Chardonnay and strong demand for Riesling is 0.40 . How does this change the recommended decision? Assume that the probabilities when Chardonnay demand is weak are still 0.05 and 0.50 .

Solution

VerifiedIn this exercise, we have to determine if the best decision obtained in part c) will change if probability assessments change. To do so, we will calculate the expected values for each decision alternative using the new given probabilities and choose the decision with the greatest expected profit.

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