Pending the outcome of an election to occur

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Reference no: EM131852994

You are running a small (three-man) design office and suddenly the job you are working on is stopped pending the outcome of an election to occur 3 months from now. Office operation costs $3,000 per month.

(a) Set up the decision tree for the actions you can take now:

(i) Do nothing.

(ii) Close the office for one month. This reduces the losses to zero, but you cannot count on rehiring an adequate staff at that time. A small job may be received at the end of the month.

(iii) Same as (ii) except close office for 3 months.

(iv) Make the rounds of prospective clients and offer to work for a reduced fee. Note that it is very difficult to raise fee levels once they are dropped. You can expect to receive sufficient jobs to continue to operate your office. Be very careful in defining the possible states. Note that probability measures exist for each possible state-undesirable as well as desirable. It is a fact that many offices are totally unrealistic in such circumstances.

(b) What additional information do you need to make the outlined study in (a) useful. Note that the election may prove negative and the job may not resume.

Reference no: EM131852994

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