What are all of the different times to make a decision, and what decisions can be made at those times?
1. Sidneyland is a popular theme park in Southern California that is now planning for its eventual re-opening after closing during Covid-19. In years past, New Years Eve was the single largest day of revenue earned by the park due to the high sales volume of NYE themed merchandise. However, this year it is uncertain if Sidneyland will even be opened on New Years Eve, and the time to order the 2021 apparel is approaching. The first purchase deadline is at the end of October, at which point Sidneyland can either buy the goods in full for $100,000 or defer the decision until the end of November. At the end of November, the rush order price rises to $150,000. There is no cost nor profit if no purchase is made. Sidneyland's public health and data science consultants estimate that there is a 40% chance that the local Covid-19 situation improves from the end of October to the end of November, a 60% chance that it stays in the current most restrictive tier. If it improves, the experts predict a 90% chance the park is open on NYE, compared to a 30% chance if it stays in the current most restrictive tier. Assuming that all goods sell for $200,000 if the park is open on NYE but are otherwise unsellable, answer the following questions about Sidneyland's purchasing strategy if their goal is maximize expected merchandise profit. a. What are all of the different times to make a decision, and what decisions can be made at those times? b. Supposing that Sidneyland defers and waits to make a decision at the end of November and supposing further that the public health scenario improves from October to November, what strategy should they take and what is the resulting expected earnings (or losses) c. Using the projections from the end of October, what are the expected merchandise earnings (or losses) if Sidneyland elects to defer the decision from October to November? d. Using the projections from the end of October, what are the expected merchandise earnings (or losses) if Sidneyland buys the merchandise at the end of October? e. What decision should Sidneyland make at the end of October? Explain. 1. Sidneyland is a popular theme park in Southern California that is now planning for its eventual re-opening after closing during Covid-19. In years past, New Years Eve was the single largest day of revenue earned by the park due to the high sales volume of NYE themed merchandise. However, this year it is uncertain if Sidneyland will even be opened on New Years Eve, and the time to order the 2021 apparel is approaching. The first purchase deadline is at the end of October, at which point Sidneyland can either buy the goods in full for $100,000 or defer the decision until the end of November. At the end of November, the rush order price rises to $150,000. There is no cost nor profit if no purchase is made. Sidneyland's public health and data science consultants estimate that there is a 40% chance that the local Covid-19 situation improves from the end of October to the end of November, a 60% chance that it stays in the current most restrictive tier. If it improves, the experts predict a 90% chance the park is open on NYE, compared to a 30% chance if it stays in the current most restrictive tier. Assuming that all goods sell for $200,000 if the park is open on NYE but are otherwise unsellable, answer the following questions about Sidneyland's purchasing strategy if their goal is maximize expected merchandise profit. a. What are all of the different times to make a decision, and what decisions can be made at those times? b. Supposing that Sidneyland defers and waits to make a decision at the end of November and supposing further that the public health scenario improves from October to November, what strategy should they take and what is the resulting expected earnings (or losses) c. Using the projections from the end of October, what are the expected merchandise earnings (or losses) if Sidneyland elects to defer the decision from October to November? d. Using the projections from the end of October, what are the expected merchandise earnings (or losses) if Sidneyland buys the merchandise at the end of October? e. What decision should Sidneyland make at the end of October? Explain
