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

question 80

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 20%; strong acceptance has a probability of 80%. The payoffs are as follows. Small job shop, moderate market = $44,000; Small job shop, strong market = $75,000. Medium job shop, moderate market = $60,000; medium job shop, strong market = $89,000. Large job shop, moderate market = -$15,000; large job shop, strong market = $102,000. Which capacity choice should the firm make?

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Definitions:

Internal Competition

The rivalry among employees or departments within the same organization, aiming to achieve better performance.

Product Design

The process of defining the appearance and functionality of a product, ensuring it meets user needs and preferences.

Overhead Costs

General business expenses not directly tied to the production of a product or service, such as rent, utilities, and administrative costs.

Functional Resources

Assets or inputs that are practical and directly contribute to the production process or service delivery in organizations.