What should be the analyst’s decision? b. How much gain or loss will he expect for the company? c. Should he buy the perfect information? Why or why not? d. What will he do to minimize opportunity cost?
14. Stephanie, the supply chain analyst of Nestle is asked to present an expansion plan for the
company. The plan is either to construct a plant, open a distribution center, or do nothing. From
the plant construction, the company will gain 80,000Php if the market turns favorable, loss of
10,000 if average, and loss of 50,000 if unfavorable. From opening a distribution center, the
company will gain 40,000Php if favorable, gain 20,000Php if average, and loss of 30,000Php if
unfavorable. And if the decision is do nothing, the company will gain nothing regardless of the
market turnout. Then, he was able to determine further the probability of occurrence of each
type of market. The probability of occurrence is 60%, 25%, and 40%, respectively. He also found
out that he can buy the information on what will really happen to the market for 2,000Php.
a. What should be the analyst’s decision?
b. How much gain or loss will he expect for the company?
c. Should he buy the perfect information? Why or why not?
d. What will he do to minimize opportunity cost?
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