Chez Paul Is Contemplating Either Opening Another Restaurant or Expanding

question 35

Essay

Chez Paul is contemplating either opening another restaurant or expanding its existing location.The payoff table for these two decisions is:
Paul has calculated the indifference probability for the lottery having a payoff of $160,000 with probability p and -$80,000 with probability (1-p)as follows:

a.Is Paul a risk avoider,a risk taker,or risk neutral?
b.Suppose Paul has defined the utility of -$80,000 to be 0 and the utility of $160,000 to be 80.What would be the utility values for -$40,000,$20,000,and $100,000 based on the indifference probabilities?
c.Suppose P(s₁)= .4,P(s₂)= .3,and P(s₃)= .3.Which decision should Paul make? Compare with the decision using the expected value approach.

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Definitions:

Do It Right The First Time

A philosophy emphasizing the importance of completing tasks correctly on the initial attempt to prevent waste and inefficiencies.

Transcendent Quality

A concept of excellence or superiority that goes beyond ordinary limits, often referring to products, services, or experiences that provide a sense of awe or wonder.

Organization's Culture

The collective values, beliefs, and behaviors that shape how work gets done within an organization.

Customer-Driven

A business strategy that focuses on creating products and services based on the preferences and feedback of customers to meet their needs effectively.