- Consider a scenario where another farmer offers you a contract that states the following. If the snowpack total for the last day of March is less than 10 inches then you will not plant your field and will transfer your water to their farm. For doing this you will be paid $500/acre for each acre that you fallow (fallow means you don’t plant). This means, however, that you cannot plant a perennial crop that generates higher profit per acre. You have determined that if you accept the contract you will plant a lower value annual crop that generates $400/acre in profit. If you refuse the contract you will plant a high value perennial crop that generates $800/acre in profit when snowpack is greater than 10 inches but only $100/acre when snowpack is less than 10 inches. The lower profit total occurs due to the fact that yields are reduced because the crop is water stressed. Using a decision tree determine whether your expected profit is higher from accepting or refusing the contract.
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