PGPM 21 – Questions for Assignment 1

Reference Ratnagiri Alphonso Orchard Case

HINT: Clearly define appropriate RANDOM VARIABLES before calculating expectations etc. 

Submissions Format: ONE Excel sheet 6 separate tabs with clearly writing/ highlighting your ans

Q1) If Pansare did not take help from the findings of the Climatology Firm, then what is his expec
expectation with Pansare's option to lease the orchard and comment?

Q2) If Pansare decides to take help from the climatology firm then calculate the posterior probabi
prediction of unseasonal rain or in the prediction of the lack of it (rain) ?

Q3) If the climatology firm gives a Prediction of "Unseasonal Rain" then what is the expectation o

Q4) If the climatology firm gives a Prediction of "No Unseasonal Rain" then what is the expectatio
findings ?

Q5) If Pansare decides to take help from the climatology firm before beginning the harvesting him
variable X for the expected gain/loss if they predict "unseasonal rain" or if they predict "no unseas
situation ?

Q6) On the basis of your analysis done in the above questions, comment on if Pansare should Ha
help from climatology) ?

Prior ProbaConditional ProbBaye's Calculation

(Join-Marginal)

P(PR/R) = 0.7 P(R∩PR) 0.35

P(R) = 0.5 P(NPR/R) = 0.3 P(R∩NPR) 0.15 P(PR) 0.45
P (NR) = 0. P(PR/NR) = 0.2 P(NR∩PR) 0.1 P(NPR) 0.55
P(NPR/NR) = 0.8P(NR∩NPR) 0.4
 ating expectations etc. 

writing/ highlighting your answers and also show your working with formulae wherever used .

Firm, then what is his expected earnings if he goes ahead with harvesting himself? Compare the latter
?

culate the posterior probabilities which will help Pansare to evaluate his degree of belief in the
?

en what is the expectation of Pansare's earnings if he harvests himself? Comment on your findings?

then what is the expectation of Pansare's earnings if he harvests himself? Comment on your

eginning the harvesting himself but is still awaiting their prediction then define an appropriate random
or if they predict "no unseasonal rain". What is the expectation of Pansare's earnings in such a

ent on if Pansare should Harvest Himself (with/without help from climatology) or lease (with/without

P(R/PR) 0.78
P(NR/PR) 0.22
P(R/NPR) 0.27
P(NR/NPR) 0.73
If Unseasonable Rain Damage of crop will be atleast 40%
If Moderate Rain at fruit matuurity Improvement in fruit size and qulaity

Summer season March to May

Rainy Season June to Sept
Post Monsoon Oct to Nov
Winter Dec to Feb
If Monsoon DELAYED Heavy rain till december

Orchard Sizec( Hectare) 100

Average Per Hectare Produce(ton/Hec) 1
Total Production 100

Grade A Mangoes (Gms) 100-150

Grade B Mangoes (Gms) 150-200
Grade C Mangoes (Gms) 200-250
Grade D Mangoes (Gms) >250

Fruits in 1 Box(KG) 10

Flowering of Mangoes Dec-Jan

Probabilty of Unseasonable Rain (RMC) 0.5

Probabilty of Seasonable Rain 0.5

Initial iNVESTMENT ($) 60000

If Unseasonable rain at max Revenue ($) 50000
If no unseasonable rain ($), Revenue 90000

Loss Range ($) 10000 to 60000

Profit ($) 30000

Option 2: Rent Period Dec2012-SEPT 2013

Rent Money(For 10 Months) ($) 64000

Climate Form Fees 1000

Event R Unseasonable rain would occur

Event NR Unseasonable rain would not occur
Event PR Probabailty that firm predicted rain
Event NPR Probabailty that firm predict no rain

P(PR/R) 0.7
P(NPR/R) 0.3
P(PR/NR) 0.2
P(NPR/NR) 0.8

∩
∪

Prior Probability Conditional Probability Baye's Calculation

(Join-Marginal)

P(PR/R) = 0.7 P(R∩PR)

P(R) = 0.5 P(NPR/R) = 0.3 P(R∩NPR)
P (NR) = 0.5 P(PR/NR) = 0.2 P(NR∩PR)
P(NPR/NR) = 0.8 P(NR∩NPR)
aye's Calculation
oin-Marginal)

0.35 P(R/PR) 0.78

0.15 P(PR) 0.45 P(NR/PR) 0.22
0.1 P(NPR) 0.55 P(R/NPR) 0.27
0.4 P(NR/NPR) 0.73
Q1) If Pansare did not take help from the findings of the Climatology Firm, then what is his expected earnings if he goes ahe

Loss if rained
Expected value of Loss

Profit if not rained

Expected value if profit

Overall Expected Return

As we can see there are two options with Pansare. First is HARVESTING and Second is leasing, If Panare
did not take assistance from Climatology firm. If Pansare opts for harvesting himself, Then there are
two posible scenarios either it will rain and damage his crop or there will be no rain and he will be able
to harvest and maximise his profit. In case fo First scenario his loss will be of $10000 and going by the
probabilty of happening, his expected return will be (-$5000). In case of second scenario his profit will
be of $30000 and going by the probabilty of occurence, his expected return will be (+$15000).
Therefore his overall earnings in Harvesting option will be 0.50*(-10000)+ 0.50*(30000) = $ 10000. On
the otherhand if Pan would have opted for leasing option, his net immediate earnings would have
been $4000.

As we can clearly see profit is higher in Harcesting option, so Pansare should choose Harvesting instead of leasing the Orchard
 expected earnings if he goes ahead with harvesting himself? Compare the latter expectation with Pansare's option to lease  the orchard

-10000
-5000

30000
15000

10000 Lease
4000 (Instant Profit in case of lease)

ting instead of leasing the Orchard to optimise his returns.

10000

(
re's option to lease  the orchard and comment?
Q2) If Pansare decides to take help from the climatology firm then calculate the posterior probabilities which will help Pans

Prior Probability Conditional Probability

P(PR/R) = 0.7
P(R) = 0.5 P(NPR/R) = 0.3
P (NR) = 0.5 P(PR/NR) = 0.2
P(NPR/NR) = 0.8

Conditional Probability POSTERIOR PROBABILITY

P(PR/R) = 0.7 ( Probabilty of firm predicting the rain given
that rain has already occurred)
P(NPR/R) = 0.3 Probabilty of firm predicting no rain given
that rain has already occurred)
P(PR/NR) = 0.2 Probabilty of firm predicting the rain given
that rain has not occurred)
P(NPR/NR) = 0.8 Probabilty of firm predicting no rain given
that rain has not occurred)
P(R/PR) = P(R PR)/P(PR) = 0.35/0.45=0.78
Probability of rain given predicted rain
P(R/NPR) = P(R NPR)/P(NPR) = 0.15/0.55= 0.27
Probability of rain given no predicted rains
P(NR/PR)= P(NR PR)/P(PR) = 0.10/0.45= 0.22
Probability of no rain given predicted rain
P(NR/NPR) = P(NR NPR)/P(NPR) =
0.40/0.55=0.73 Probability of no rain given no
predicted rain

Event R Unseasonable rain would occur

Event NR Unseasonable rain would not occur
Event PR Probabailty that firm predicted rain
Event NPR Probabailty that firm predict no rain
bilities which will help Pansare to evaluate his degree of belief in the prediction of unseasonal rain or in the prediction of the lack of it (r

Baye's Calculation
(Join-Marginal)

P(R∩PR) 0.35 P(R/PR) 0.78

P(R∩NPR) 0.15 P(PR) 0.45 P(NR/PR) 0.22
P(NR∩PR) 0.1 P(NPR) 0.55 P(R/NPR) 0.27
P(NR∩NPR) 0.4 P(NR/NPR) 0.73
ediction of the lack of it (rain) ?
Q3) If the climatology firm gives a Prediction of "Unseasonal Rain" then what is the expectation of Pansare's earnings if he h

P(R/PR)
P(NR/PR)

* Assumption: Pansare has paid $1000 to the firm for the access to their prediction

POSTERIOR PROBABILITY
P(R/PR) = P(R PR)/P(PR) = 0.35/0.45=0.78 Probability of rain given predicted rain
P(NR/PR)= P(NR PR)/P(PR) = 0.10/0.45= 0.22 Probability of no rain given predicted rain

In first scenario, Probability of rain given that firm predicted the rain there will be expected loss of -8555.55 and ex . In Second
predicted rain, there would be expected profit of $6444.44. Hence overall expected return will be -2111.11 $

If Firm has predicted the rain and Pansare subscribed to the report, there is 78% chance that rain will happen and pansare can
on your findings?

0.777778 -11000 -8555.556

0.222222 29000 6444.444

Expected Earning -2111.111

Firms charge

Overall Earning -2111.111

whether to harvest or not.

Q4) If the climatology firm gives a Prediction of "No Unseasonal Rain" then what is the expectation of Pansare's earnings if h

P(R/NPR) 0.27 -11000 -2970

P(NR/NPR) 0.73 29000 21170

Expected Earning 18200

* Assumption: Pansare has paid $1000 to the firm for the access to their prediction

POSTERIOR PROBABILITY
P(R/NPR) = P(R NPR)/P(NPR) = 0.15/0.55=
0.27 Probability of rain given no
predicted rains
P(NR/NPR) = P(NR NPR)/P(NPR) =
0.40/0.55=0.73 Probability of no rain
given no predicted rain

In first scenario, Probability of rain given

no predicted rainsthere will be expected
loss of -2970. In Second scenario,
Probability of no rain given no predicted
rain, there would be expected profit of
21170. Hence overall expected return will
be $ 18200

If Firm has predicted no rain and Pansare subscribed to the report, there is 73% chance that rain will not happen and pansare
tation of Pansare's earnings if he harvests himself? Comment on your findings ?

in will not happen and pansare can harvest with higher probability to make profit.
Q5) If Pansare decides to take help from the climatology firm before beginning the harvesting himself but is still awaiting th
random variable X for the expected gain/loss if they predict "unseasonal rain" or if they predict "no unseasonal rain". What
such a situation ?

Pansare takes the help of climatologist firm - There are 2 options - A) If predicted rain by climatologist firm and rain occurred a
+0.22*30000(Profit)= - $ 1200 Loss, In the case A if he does not harvest himself and opts for lease option then his earnings wo
harvesting himself and opt for lease B) If no rain predicted by climatologist firm and rain occured and not occured - 0.27* -110
calculating overall expected earnings for probability 4000*0.45+19200*0.55 = Rs 12360, Also Rs 1000 is paid to climatologist fi

We have defined Random variable as x which is probability of rain predicted by climatologist firm =0.45 and 1-x as probability
=0.55
Agar khud harvesting karna h toh why will he wait for their prediction, so lease option has to be considered

SECOND APPROACH
Minimum 40% harvest spoiled -24000 Investment loss(60000*40%), 36000 saving(60000*0.60) par 50000 Revenue kama raha

If Panesar continues to harvest the orchard and does not leases , he will have to bear the loss of 10000 US$ on his investment
Best possible outcome that Panesar achieved was when he predicted there is no rain and he did not opted for lease option. Hi
 Event X (firm predictionUnseasonal rain x -11000

Event X' (firm predictio No unseasonal rain 1-x 29000

#VALUE!

0% harvest spoiled , 30000 Investment, 30000 saving ,(50000/36000*30000) Rs 42000( Approx Revenue), Overall Investment Rs 60000 , ne
Overall Investment Rs 60000 , net loss Rs 18000, 60% harvest spoiled, (60000*60%) Invt loss Rs 36000, saving Rs 24000, then revenue ( 50
ng Rs 24000, then revenue ( 50000/36000*24000) Rs 33333, so net loss (60000-33333) 40,75 and 100%(Scanerio)
Q6) On the basis of your analysis done in the above questions, comment on if Pansare should Harvest Himself (with/withou

Max Returns with Climatologist Report (Refer Q3 for details)

Max Returns without Climatologist Report (Refer Q1 for details)
Climatologist Fees ( As per the given information)
Incremental value addition(Max Value with Climatologist Report
– Max Value without Climatologist Report – Climatologist Fees
omment on if Pansare should Harvest Himself (with/without help from climatology) or lease (with/without help from

12300
10000
1000

1300

So Panasar should consider climatologist report as it

would provide him with best profit without leasing
his firm to Fruit Merchant

Win-Win situation for Pansare would be not to lease

the orchard ultimately as based on estimations, the
probability of predicted unseasonal rain is 45%. If
there is no predicted unseasonal rain, Pansare shall
be earning a net profit of 11300 US$ after making a
payment of 1000 US$
ut help from
Q5
Proabability of firm predicting unexpected rains

When
firm
predicted
rain and
rain not
If rain occurs P(R/PR) When firm P(NR/PR) Profit occurred Cumulative 1
Scanerios % Net Loss
1 40 10000 0.78 7800 0.22 30000 6600 -1200
2 55 22500 0.78 17550 0.22 30000 6600 -10950
3 90 51666.66667 0.78 40300 0.22 30000 6600 -33700

Proabability of firm not predicting expected rains

If rain not occurs

When
firm not
predicted
rain and
rain not
Scanerios % Net Loss P(R/NPR) Net Loss P(NR/PR) Profit occurred Cumulative 2
1 40 10000 0.27 2700 0.73 30000 21900 19200
2 55 22500 0.27 6075 0.73 30000 21900 15825
3 100 51666.66667 0.27 13950 0.73 30000 21900 7950

Overall Cumulative

Scanerios Cumulative 1 Cumulative 2 Net

1 -1200 19200 18000
2 -10950 15825 4875
3 -33700 7950 -25750
Cumulative 1

Invt Savings
33000 27000
54000 6000

Cumulative 2