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

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Operations Management

Monica’s cousin, Chloe, would like to set up a smallcandy boutique at school for Valentine’s Day next February (thisfamily has a lot of entrepreneurs!!). She has decided that demandwill be for 10 boxes, 20 boxes or 30 boxes. Each box costs her $12but 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 candyshop. If she runs out of candy while there is still demand, shewill suffer a lost goodwill charge of $4 per box. Show theconditional payoffs facing her in the chart below.

1) Fill out the table

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

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

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

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