1. Under favourable weather conditions the management of Flesher farms expect its rasphberry crop to have a $ 120,000/ - market value. An...

The cost of the raspberry crop has a market value of
$120,000. If it is subjected to frost the value becomes $80,000. The protection of the
crop from frost costs $20,000. If the crop is protected and there is frost the market
value is 180,000.

Now for Flescher to be indifferent to
spending the extra $20,000, the probability of a frost which we assume is P should be
such that:

the loss incurred when the crop is not protected
* the probability of frost = the profit incurred if there is a frost and the crop is
protected

=> P*40,000 = (1-P)* 60000 -
20000

=> 40000P = 60000 - 60000P -
20000

=> 100,000P =
40,000

=> P = 40,000 /
100,000

=> P =
0.4

Therefore if there is a probability of
0.4 that there will be frost, Flescher is indifferent to getting the farm
protected.