Posted by **Linda** on Thursday, August 25, 2011 at 8:02am.

4. John sells ice cream bars at the local park. He buys the bars for $1.20 per dozen and sells them for $0.15 each. If it is a rainy day at the park, he can sell nothing; if is overcast, he sells one dezen bars; and if is sunny, he sells two dozen. He can return unsold bars, but on;y gets $0.05 each for them. (He can only buy in dozens).

1. Assume that John is a pessimist, what should he do? Buy:

a) 2

b) 0

c) 1.5

d) 3

e) None of these

2. Assume that John is an optimist (gambler), what should he do? Buy:

a) 0

b) 1

c) 1.5

d) 2

e) 2.5

3. A one-legged, red-nosed tramp approaches John in the park and tells him he can predict the next day’s weather perfectly after he has drunk a shot of “Ripple” wine (cost of one shot: $0.50). If the tramp is telling the truth, should John engage in this transaction?

a) Yes

b) No

c) Not enough information to answer this question.

4. Assume that John is using minimax regret criteria, how many dozen should he buy?

a) 0

b) 1

c) 1.5

d) 2

e) 2.5

5. If the weather bureau’s forecast for the next day is 30 percent chance of rain, 20 percent chance of being sunny, how many dozen bars should he buy for tomorrow?

a) 0

b) 1

c) 2

d) 3

6. The value of perfect information is:

a) 4

b) 20

c) 24

d) 45

e) 54

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