Due to the increase in competition in the supply of Cocoa Bars to Publix, Ernesto Dela...

 

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Due to the increase in competition in the supply of Cocoa Bars to Publix, Ernesto Dela Cruz was planning to venture into another business. He was thinking of a Premium Cocoa Powder for Baking. From the accounting report, if there are higher sales, the total contribution margin will be $15,000.00. On the other hand, if low, the contribution margin will be $1,000.00 while the Fixed Cost is $7,500.00. Therefore, it has a probability of 0.50 for each state of nature. Ernesto can survey other supermarkets to determine the actual demand for the product. The reliability of the survey signals that there will be high sales 70% of the time when actual sales will increase, while 90% of the time when actual sales will be low. The survey cost is $300. If Ernesto will base his decision on expected value: 1. What action will Ernesto take without the survey? Explain Why 2. Should Ernesto take the survey? What should be his decision? Explain Why 3. How much is Ernesto willing to pay for the perfect data as a basis for his business decision? Due to the increase in competition in the supply of Cocoa Bars to Publix, Ernesto Dela Cruz was planning to venture into another business. He was thinking of a Premium Cocoa Powder for Baking. From the accounting report, if there are higher sales, the total contribution margin will be $15,000.00. On the other hand, if low, the contribution margin will be $1,000.00 while the Fixed Cost is $7,500.00. Therefore, it has a probability of 0.50 for each state of nature. Ernesto can survey other supermarkets to determine the actual demand for the product. The reliability of the survey signals that there will be high sales 70% of the time when actual sales will increase, while 90% of the time when actual sales will be low. The survey cost is $300. If Ernesto will base his decision on expected value: 1. What action will Ernesto take without the survey? Explain Why 2. Should Ernesto take the survey? What should be his decision? Explain Why 3. How much is Ernesto willing to pay for the perfect data as a basis for his business decision?

Answer rating: 100% (QA)

solution 1 Without the survey Ernesto would take the action of venturing into the Premium Cocoa Powd... View the full answer