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.

---

Definitions:

Impotent

Refers to the incapability to take effective action; powerlessness, or in a medical context, the inability to achieve or maintain an erection.

Codominance

A genetic scenario where two different alleles for a specific trait are both expressed fully in an individual's phenotype, leading to a blend or coexistence of both traits.

Preponderance

The condition of being greater in number, quantity, or importance; often used in legal contexts to describe the standard of proof in civil cases.

Ascendance

The act of rising to a position of dominance or control in various contexts such as social, corporate, or military fields.