Refer to the Following:
a Firm Is Considering the Decision $\text { The economy }$

question 22

Multiple Choice

Refer to the following:
A firm is considering the decision of investing in new plants. The following is the profit payoff matrix under three conditions: it does not expand, it builds two new plants, or it builds one new plant. Three possible states of nature can exist--no change in the economy, the economy contracts and the economy grows. The firm has no idea of the probability of each state.
$\text { The economy }$
$\begin{array}{lccc} & \text { expands } & \text { contracts } & \text { unchanged } \\\hline \text { no new plants } & \$ 20 \text { million } & -\$ 3 \text { million } & \$ 4 \text { million } \\1 \text { new plant } & \$ 30 \text { million } & -\$ 6 \text { million } & \$ 6 \text { million } \\2 \text { new plants } & \$ 40 \text { million } & -\$ 12 \text { million } & \$ 8 \text { million }\end{array}$
-What decision would be made using the maximum expected value rule?

• A) no new plants
• B) one new plant
• C) two new plants
• D) not enough information to tell

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Definitions:

Periphery

The outer limits or edge of an area or object, often used metaphorically to describe elements that are not central or core to a system or organization.

Workforce Reduction

The process of decreasing the number of employees in an organization through layoffs, attrition, or other methods, often for cost-cutting measures.

Layoffs

The process of dismissing staff members, frequently because of financial declines, changes in the organizational structure, or efforts to reduce expenses.

Labour Force Participation

The proportion of the working-age population that is engaged in or seeking employment.