You have been appointed regional manager of a casual-dining restaurant chain in a moderate sized (1.5 million population) metropolitan area in the United States.
a. Explain the underlying economic structure of the demand and supply relationships for your business that define your economic framework.
b. What are the sunk costs associated with your current framework? Before you make a single decision, what types of anchoring bias should you be aware of going forward? How well do you know yourself as a risk taker or risk avoider, i.e., how would you see yourself in the spectrum of prospect theory?
c. Lehman Brothers has failed and the outlook for the economy has darkened quickly. What feedback does this change signal for your business? List three options for your action and suggest a choice for the business. What is your new framework for the business and how does that differ from the initial framework?
d. In an effort to make up for lost revenue, the county where your chain of five restaurants is located introduces a special tourism tax of 15 percent on all restaurant meals to pay for a new baseball stadium. Repeat the process of recognizing change, estimating feedback, making choices, and developing a new framework, and discuss how the influence of an anchoring bias impacts your judgment of closing one restaurant and moving to a new county.
Explain your expected feedback from such a change and then your choices to deal with this change.