A Seattle Entrepreneur Must Decide on the Size of a Latte

question 52

Essay

A Seattle entrepreneur must decide on the size of a latte stand to construct. The manager has narrowed the choice down to large or small. If he builds large and experiences low demand he could grin and bear it for a $200 daily profit, lower prices ($225 daily profit), or hire street performers to attract attention ($175 daily profit). If he builds small and experiences high demand he could do nothing ($175 profit per day), stay open longer hours (profit of $225/day), improve processes ($250/day profit), or raise prices ($200/day profit). Building large for high demand has an expected payoff of $250/day and building small for low demand has an expected payoff of $175/day. There is a 0.7 probability of high demand and 0.3 probability of low demand. Sketch a decision tree for this scenario and determine what size stand should be constructed to slake the unquenchable thirst of caffeine addicts.

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Definitions:

Anterior Commissure

A bundle of nerve fibers connecting the two hemispheres of the brain, playing a role in pain sensation and other functions.

Neural Relay Center

A part of the nervous system responsible for processing and transmitting information from one area to another.

Pons

A part of the brain located in the brainstem, serving as a major communication and coordination center between the two hemispheres of the brain.

Regulating Homeostatic

The process of maintaining internal balance and stability in biological systems despite changes in the external environment.