Seneca hill winery recently purchased land for the purpose of establishing a new vineyard. management is considering two varieties of white grapes for the new vineyard: charonnay and riesling. the chardonnay grapes would be used to produce a dry chardonnay wine, and the riesling grapes would be used to produce a semi-dry riesling wine. it takes approximately four years from the time of planting before new grapes can be harvested. this length of time creates a great deal of uncertainty conceming future demand and makes the decision conceming the type of grapes to plant difficult. three possibilities are being considered: chardonnay grapes only; riesling grapes only; and both chardonnay and riesling grapes. seneca management decided that for planning purposes it would be adequate to consider only two demand possibilites for each type of wine. strong or weak. with two possibilities for each type of wine, it was necessary to assess four probabilities. with the of some forecasts in industry publications, management made the following probability assessments:

riesling demand

chardonly demand weak strong

weak .05 .5

strong .25 .2

revenue proejctions show an annual contribution to profit of $20,000 if seneca hill only plants chardonnay grapes and demand is weak for chardonnay wine, and $7 if seneca only plants chardonnay graphes and demand is strong for chardonnay wine. if seneca only plants riesling grapes, the annual profit projection is $25,000 if demand is weak for riesling grapes and $45,000 if deamnd is strong for riesling grapes. if seneca plants both types of grapes, the annual profit projections are shown in the following table:

riesling demand

chardonly demand weak strong

weak $22,000 $40,000

strong $26,000 $60,000

a. what is the decision to be made, what is the chance event, and what is the consequence? identify the alternatives for the decisions and th epossible outcomes for the chance event.

b. develop a decision tree.

c. use the expected value appraoch to recommend which alternative seneca hill winery should follow in order to maximize expected annual profit.

d. suppose management is concerned about the probability assessments when demand for chardonnay wine is strong. some believe it is likely for riesling demand to also be strong in this case. suppose the probability of strong demand for chardonnay and weak demand for riesling is .05 and that the probability of strong demand for chardonnay and strong demand for riesling is .40 how does this change the recommended decision? assume the probabilities when chardonnay demand is weak are still .05 and .5

e. other member so the management team expect the chardonnay market to become saturated at some point in the future, causing a fall in prices. suppose that the annual profit projections fall to $50,000 when demand for charonnay is strong and chrdonnay grapes only are planted. using the original probability assessments, determine how tis change would affect the optimal decision.