Wendy's Must Decide Whether to Grow Its Own Potatoes for French

question 103

Multiple Choice

Wendy's must decide whether to grow its own potatoes for French fries.Growing potatoes is a very different process from running a fast-food restaurant.Based on this information alone, should Wendy's grow its own potatoes?

• A)No, because Wendy's managers have bounded rationality.
• B)Yes, because Wendy's managers have bounded rationality.
• C)No, because there is a small number of potato suppliers.
• D)Yes, because there is a small number of potato suppliers.
• E)No, because it is easy to observe the quality of potatoes.

Understand and explain the concept of heuristic thinking in decision making.

Identify and describe various heuristics, such as Anchoring with Adjustment, Loss and Risk Aversion, Representation, Simulation, Elimination by Aspect, Optimistic Bias, Satisficing, and Association.

Analyze the impact of heuristic thinking on judgments and decision making.

Explore the misapplications and potential errors in judgment arising from specific heuristics.

---

Definitions:

Average Total Costs

The average cost per unit is calculated by dividing the entire production cost by the quantity of units produced.

Total Fixed Costs

The sum of all costs that remain constant in total amount regardless of changes in the level of production or output.

Total Cost

The combined financial outlay for producing goods or services, covering both unchanging and varying expenses.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.