Question

. A man has the choice of running either a host-snack stall or an ice-cream stall at a sea side resort during the summer season. If it is a fairly cool summer, he should make Rs. 5000 by running the hot-snack stall, but if the summer is quite hot, he can only expect to make Rs. 1000. On the other hand, if he operates the ice-cream stall, his profit is estimated at Rs. 6500, if the summer is hot, but only Rs. 1000 if it is cool. There is a 40 per cent chance of the summer being hot. Should he opt for running the hot-snack stall or the ice-cream stall. Give mathematical argument.

Answer 1

The investment cost from ice cream is significantly smaller than the hot dog shop, the man could perhaps opt for something like a hot dog stall.

Explanation:

The given values are:

Percentage of being hot summer,

= 40%

i.e,

= 0.4

So that,

The percentage of being cold,

= 1 - 0.4

= 60%

Now,

From hot dog, the expected profit will be:

⇒
`5000* P(cold \ summer) + 1000* P(hot \ summer)`

On putting the values, we get

⇒
`5000* 0.6+1000* 0.4`

⇒
`3400`

From ice-cream stall, the profit will be:

⇒
`6500* P(hot \ summer)+1000* P(cold \ summer)`

On putting the values, we get

⇒
`6500* 0.4+1000* 0.6`

⇒
`3200`

So the above is the right response.