Monica’s cousin, Chloe, would like to set up a small candy boutique at school for Valentine’s...

Monica’s cousin, Chloe, would like to set up a small candy boutique at school for Valentine’s Day next February (this family has a lot of entrepreneurs!!). She has decided that demand will be for 10 boxes, 20 boxes or 30 boxes. Each box costs her $12 but she thinks she can sell each one for $15. If she overstocks, then she can get a salvage value of $8 per box from the local candy shop. If she runs out of candy while there is still demand, she will suffer a lost goodwill charge of $4 per box. Show the conditional payoffs facing her in the chart below.

1) Fill out the table

2) Which decision should Chloe make if she is an optimist? Explain.

3) Which decision should Chloe make if she is a pessimist? Explain.

4) Suppose that a friend offers Chloe additional information regarding demand but is charging $50 for it. Should Chloe pay for this information? Why or why not? Show all work.

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Expert Solution

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Answer

keosha answered 2 months ago

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