A Firm Is Weighing Three Capacity Alternatives: Small, Medium, and Large

question 89

Essay

A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 30%; strong acceptance has a probability of 70%. The payoffs are as follows. Small job shop, moderate market = $20,000; Small job shop, strong market = $57,000. Medium job shop, moderate market = $25,000; medium job shop, strong market = $84,000. Large job shop, moderate market = -$5,000; large job shop, strong market = $106,000. Which capacity choice should the firm make?

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Definitions:

Negative Outcomes

Unfavorable or adverse results that occur as a consequence of an action or a series of actions.

Economic Welfare

The overall state of economic health and prosperity in a society, often measured by standards of living, income distribution, and availability of goods and services.

Chores

Routine tasks or duties, often related to maintaining a household or contributing to community work.

Nurturant

Characterized by providing nurturing care and support, often in the context of parenting or caregiving relationships.