Question

A successful Mexican seafood restaurant in Texas has a single owner and a single location. The owner is debating on the next step for the business. The owner thinks that opening only a couple of new locations in the area could help maintain the customers' perception of a unique local restaurant, which has been part of its success. On the other hand, franchising the restaurant could drive rapid economic growth and therefore develop an image as a regional restaurant. It is also possible that a combination of new local locations and franchising could bring better financial and public relations results. This option has the highest associated cost, whereas opening only a couple of new locations or franchising would cost less. In any case, the owner believes the worst-case scenario is to have moderate demand and the best-case scenario is to have high demand.

What are the states of nature in the owner's decision?

A. Opening a couple of locations, franchising, and both

B. Local and regional customers' perception

C. Economic growth and local and regional customers' perception

D. High demand and moderate demand

Answer 1

THE OWNER'S STATE OF NATURE RESTS IN OPTION D

THAT IS, HIGH DEMAND AND MODERATE DEMAND

REASON: EVEN IF THE OWNER UNDERTAKES OPENING BOTH FRANCHISING AND NEW LOCATIONS ASSOCIATED WITH MORE COST THAN THE INDIVIDUAL DEPENDENCY OF PROJECTS THERE MAY EXIST BEST SCENARIO OF MODERATE DEMAND OR HIGH DEMAND.