Alternatives 1 and 2 in the Following Payoff Table Represent

question 27

Multiple Choice

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (S_I) represent the levels of demand for the company products. S₁, S₂, and S₃ characterize high, medium, and low demand, with probabilities of .3, .6, and .1, respectively. The payoff values are in thousands of dollars. Find the expected monetary value for each of the alternatives and determine the best alternative (course of action) for the EKA manufacturing company using the expected monetary value criterion.

• A) EMV₁ = $98,000, EMV₂ = $95,000, choose strategy 1
• B) EMV₁ = $88,000, EMV₂ = $95,000, choose strategy 2
• C) EMV₁ = $88,000, EMV₂ = $85,000, choose strategy 1
• D) EMV₁ = $66,667, EMV₂ = $76,667, choose strategy 2
• E) EMV₁ = $120,000, EMV₂ = $110,000, choose strategy 1

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Definitions:

Wholly Owned Subsidiary

A company whose entirety of shares is held by another corporation, the parent company, thus giving the parent complete control.

E-Commerce Firm

A company that conducts its business transactions through the internet.

Entry Tactic

A strategy employed by businesses to enter a new market, overcome barriers, and compete effectively.

"Make" Tactic

A strategy within businesses to produce goods or services in-house, as opposed to outsourcing from external suppliers.