The owner of the Snow Fun Ski Resort wants to decide how the resort should be run in the coming winter season. The resorts profits for this years skiing season will depend on the amount of snowfall during the winter. On the basis of prior experience, the probability distribution of snowfall and the resulting profit is summarized below Amount of snow More than 40 inches 20- 40 inches Less than 20 inches Profit 120,000 S40,000 (S40,000) Probabiity 0.4 0.2 0.4 The owner has recently received an offer from a larger hotel chain to operate the resort for the winter, guaranteeing a $45,000 profit for the season. The owner is also considering leasing snowmaking equipment for the season. If the equipment is leased, the resort will be able to operate full time, regardless of the amount of natural snowfall. The owner can only make one decision here (i.e., if the sells the operation rights to the hotel, there is no consideration of leasing snowmaking equipment) If the owner decides to use snowmakers to supplement the natural snowfall, the profit for the season will be $120,000 minus the cost of leasing and operating the snowmaking equipment. The leasing cost will be about $12,000 per season, regardless of how much it is used. The operating costs will be $30,000 per 20 (or fraction thereof) of snow that is required to be made to obtain at least 60 of snow – i.e., if the natural snow is less than 20, the cost will be $90,000; if the natural snow is between 20 and 40 the operating cost will be $60,000; and if the natural snow is more than 40, the operating cost will be $30,000.
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