Tom Tolkien, the CEO, is not happy with the quality of information being presented by his business manager. He asks the best economic consultancy firm in the country to provide an accurate macroeconomic forecast, which they guarantee would be 100% accurate. What is the most that Tolkien Transport should be willing to pay the research firm for this information (in other words what is the value of perfect information concerning the state of the economy)? The business manager of Tolkien Transport wishes to analyse three strategic optionsavailable to the company (Cost-cutting; Diversification; Expansion) under four possibleUK macroeconomic conditions: Recession, Low Growth, Medium Growth and HighGrowth. He has summarised available information in the following pay-off matrix (withimpact on company profits in the next year in £000s).Macroeconomic ConditionsMedium GrowthRecession Low GrowthHigh GrowthCost-CuttingDiversificationExpansion100130170200-12050240300-25030300500

Game theory is a mathematical concept that is used in business economics to analyze strategic…

Answered: Tom Tolkien, the CEO, is not happy with…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter5: Business And Economic Forecasting

Section: Chapter Questions

Problem 2E

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Tom Tolkien, the CEO, is not happy with the quality of information being presented by his business manager. He asks the best economic consultancy firm in the country to provide an accurate macroeconomic forecast, which they guarantee would be 100% accurate. What is the most that Tolkien Transport should be willing to pay the research firm for this information (in other words what is the value of perfect information concerning the state of the economy)?

The business manager of Tolkien Transport wishes to analyse three strategic options
available to the company (Cost-cutting; Diversification; Expansion) under four possible
UK macroeconomic conditions: Recession, Low Growth, Medium Growth and High
Growth. He has summarised available information in the following pay-off matrix (with
impact on company profits in the next year in £000s).
Macroeconomic Conditions
Medium Growth
Recession Low Growth
High Growth
Cost-Cutting
Diversification
Expansion
100
130
170
200
-120
50
240
300
-250
30
300
500

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