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Mr., Jaeger Chooses To Harvest The Riesling Essay

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¶ … Mr., Jaeger chooses to harvest the Riesling grapes in anticipation of the storm -- that is, before the storm hits ro doesn't hit, but out of concern that his crops will be ruined -- he will have revenue of $17,100 from the sale of 6000 bottles at $2.85 per bottle.

If Mr. Jaeger waits to see what will happen, there is a twenty percent chance that the storm will hit and the Riesling grapes will develop the botrytis mold (a .5 probability of the storm multiplied by a .4 probability that if the storm hits the mold will form equals a .2 probability of mold overall), and if this occurs there will be $33,600 of revenue from the sale of 4200 bottles (reduced yield from the mold) at $8 per bottle.

Taking all of the potential outcomes into account, it would appear that Mr. Jager ought to wait and see what happens. The outcome of harvesting now is simple and leads to a guaranteed return of $17,100. Multiplying the probabilities of each "wait and see" outcome by the revenue of each of these outcomes yields an average revenue of $19,620. While there is the possibility of a smaller return on the second option, then, it is more likely that Mr. Jaeger will realize a higher return by waiting.

4.

If Mr. Jaeger had certain knowledge about whether or not the storm would hit, he could get an average yield of $20,640 if the storm hits and $18,600 if it doesn't, meaning that it would be worth approximately $2,000 to now for certain whether or not the storm would hit. $2,00 is also close to the difference between the "harvest now" revenue and the average "wait and see" revenue, making this a reasonable assessment.

5.

If Mr. Jaeger had certain knowledge as to whether or not the botrytis mold would form if the storm hit but no certain knowledge about the storm, he should still only pay about $2,000 for the information. Though he potentially stands to gain a great deal from knowledge that the mold will form, knowledge that the mold would not form would save but not generate much revenue, and thus he should pay no more than the difference between his options as they stand when he has no knowledge of the weather.

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