A Firm Making Production Plans Believes There Is a 30

question 38

Multiple Choice

A firm making production plans believes there is a 30% probability the price will be $10,a 50% probability the price will be $15,and a 20% probability the price will be $20.The manager must decide whether to produce 6,000 units of output (A) ,8,000 units (B) or 10,000 units (C) .The following table shows 9 possible outcomes depending on the output chosen and the actual price. $$\begin{array} { c c c c } & { \text { Prand (Lasi) when price is } } \\ \text { Pradiction } & \$ 10 & \$ 15 & \$ 20 \\\hline 6,000 ( A ) & - \$ 200 & \$ 400 & \$ 1,000 \\\text { B,000 } ( B ) & - \$ 400 & \$ 600 & \$ 1,600 \\10,000 ( C ) & - \$ 1,000 & \$ 800 & \$ 3,000\end{array}$$ For the above payoff matrix,suppose the manager has no idea about the probability of any of the three prices occurring.If the maximin rule is used how much will the firm produce?

• A)6,000
• B)8,000
• C)10,000
• D)cannot use this rule to make the decision

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Definitions:

Working to Rule

A form of industrial action where employees strictly follow the rules and guidelines to the letter as a means of protest, often reducing productivity.

Structural Characteristic

Fundamental qualities or traits that define the nature, behavior, or layout of a system, organization, or structure.

Formalization

The extent to which work roles are highly defined by an organization.

Smaller Organizations

are entities characterized by fewer employees and resources, often more flexible and adaptable than larger counterparts.