Answer:
The grower should spend the $5,000, thereby reducing the profit to $95,000.
But, this is based on a 20% probability of freezing temperature during the next week.
Step-by-step explanation:
A) If freezing weather happens with a 20% chance, the profit will be reduced to $60,000.
With this probability, the probable loss will be 20% X $40,000 = $8,000.
B) If the grower can protect the fruit against freezing weather at a cost of $5,000, then she should go ahead. Doing this, the profit will be reduced to $95,000 because of the cost.
However, it is worthy to note that freezing weather happens at 20% chance. This implies that the freezing weather might not happen, 80% chance. But, prudence still demands that necessary precautions are taken, and this includes protecting the crop at a cost of $5,000.
