Management Science Assignment given on 17 th July

Case Name: Freemark Abbey Winery (Abridged)

Case Summary: A warm light rain could cause beneficial mold botrytis
cinerea. This results in producing wine of high quality.
There was 50% chance of rain storm, and if rain storm did strike the valley. The
various options Jaeger have its disposal are:
If storm did not strike:
Option 1: it may produce wine that could fetch them price between the range of
$3 - $3.5 per bottle. Chances are - .5 * .8 = 40%. Total revenue: $9 lacs
10.5 lacs
Option 2: The acid level of grapes could go down leading to wine price of $2.5
per bottle. Chances are - .5*.2 = 10%. Total revenue: $7.5 lacs
If storm strikes:
Option 3: There was 40% chance that it could lead to development of botrytis
cinerea. So, overall chances of producing fine wine are - .5*.4 = .2 or 20%. In
this case prices obtained from wine will be around $8 per bottle but the volumes
will reduce by 30%. Total Revenue: $16.8 lacs
Option 4: There was a 60% chance that botrytis cinerea is not formed and that
berries are diluted. So, over all chances of this are - .5 * .6 = .3 or 30%. In this
case price of wine thus produced will be $2 per bottle, which is very ordinary.
Total Revenue: $6 lacs
Harvest without waiting for storm:
Option 5: Jaeger could immediately harvest the grapes and produce wine, but of
low quality, to eliminate risk and get $2.85 per bottle. Total Revenue: $8.55
lacs
Option 6: Jaeger could harvest the grapes and sell them instead of producing
wines out of them to save its reputation by not risking producing low quality
wine. The revenue thus earned may be half of revenue earned through option 4.
Total Revenue: $3 lacs.

1. Assuming Mr. Jaeger chooses to harvest the Riesling grapes before the storm
arrives, how much money will he make?
Answer: If he produces wine, then he will make $8.55 lacs. But he decides not to
produce wine and instead sell the grapes in market, he will make a paltry $3
lacs.
2. Assuming Mr. Jaeger chooses to leave the grapes on the vine, what is the
probability that the grapes will end up with botrytis, and how much money will
he make if that occurs?
Answer: Chances of this happening are 20% and the revenue earned could be
$16.8 lacs
3. Taking account of all the various possibilities, what should Mr. Jaeger do?
Answer: He should harvest 50% of grapes immediately and produce the wine
with them. And he should hope that the storm strikes and botrytis cinerea is
formed.