Author Question: For a wheat farmer, the following factor(s) are uncontrollable a. Quality of the wheat b. Weather ... (Read 122 times)

piesebel

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For a wheat farmer, the following factor(s) are uncontrollable
 a. Quality of the wheat
 b. Weather
 c. The speed at which the product reaches its buyers
  d. All of the above

Question 2

Fashion Buyers I A buyer for a department store must decide on which designs the stores will carry before he knows what the demand will be in the coming season. Choosing a poorly demanded design means lots of unsold merchandise and losses that are 200,000 on average. Passing on a highly demanded design means unsold merchandise and missing out on profits that are 300,000 on average. What probability of a design's success should he be in order to choose to carry it?



ambernicolefink

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Answer to Question 1

b

Answer to Question 2

Under the hypothesis that a given design will be profitable, the cost of a Type I Error (false positive) is 300,000 and the cost of a Type II Error (false negative) is 200,000 of passing. If p is the probability that the hypothesis is true, the expected costs of both decision errors are equal if:
p300,000 = (1-p)(200,000)
or
p300,000 = 200,000-p200,000
or
p(300,000+200,000) = 200,000
or
p = 200,000/(300,000+200,000) = 40.
So long as he is more than 40 confident that the design will be successful, carrying the design will minimize expected decision error costs.



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