Freemark Abbey Winery Case Solution

Case Solution

Free mark Abbey need to research if you should harvest cellular the potential for rain. Rain could damage the crop but stalling the harvest might be harmful. However, rain may be beneficial and greatly increase the requirement for the resulting wine. This decision is further complicated because ripe Riesling grapes might be vinified by 50 percent ways, resulting in two versions of wine. Their relative prices would depend around the uncertain preference of clients a couple of years later, when the vino is canned and offered.

Excel Calculations

Expected Payoffs

All Payoffs

Questions Covered

Draw a decision tree to depict the choices and possible events Jaeger is facing.  What are the decisions to be made?  What are the chance nodes that will occur?  What are the payoffs?  (In drawing your tree, assume that Jaeger is an expected value maximizer, i.e. that he is risk-neutral.)

How would the optimal decision change if the reputation damage from bottling a thin wine were substantial enough that Jaeger would rather sell the grapes in bulk than bottle a thin wine?

How much would Jaeger be willing to pay for a weather forecast that would tell him with near certainty whether or not the storm will hit?

How would risk aversion affect the harvest decision?