Decision making and expected values

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Reference no: EM1390841

FINRA is considering three alternatives for providing food services (breakfast and lunch) to its employees: creating a company owned food service and hiring its own staff, hiring an outside vendor to provide food services (outsourcing), or a combination of hiring its own staff and outsourcing. The cost of providing food services depends on future demand. The annual cost of each option (thousands of dollars) depends on demand as follows:

Demand

Staffing Options High Medium Low

Hiring Own Staff 1300 1000 975

Outside Vendor 900 600 300

Combination 800 650 500

If the demand probabilities are 0.1, 0.5, and 0.4, which decision alternative will minimize the expected cost of providing food services for the staff? What is the expected annual cost associated with that recommendation?

Reference no: EM1390841

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