The Waco Tire Company (WTC) Is Considering Expanding Production to Meet

question 10

Short Answer

The Waco Tire Company (WTC) is considering expanding production to meet possible increases in demand. WTC's alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. It will cost them $1 million to build a new facility and $600,000 to expand their existing facility. The market for this particular product may expand, remain stable, or contract. ETC's marketing department estimates the probabilities of these market outcomes as 0.30, 0.45, and 0.25, respectively. The expected revenue for each alternative is presented in the table below.
-(A) What is WTC's payoff if they build a new plant and the market expands?
(B) What is WTC's payoff if they build a new plant and the market is stable?
(C) What is WTC's payoff if they build a new plant and the market contracts?
(D) What is WTC's payoff if they expand the plant and the market expands?
(E) What is WTC's payoff if they expand the plant and the market is stable?
(F) What is WTC's payoff if they expand the plant and the market contracts?
(G) What is WTC's payoff if they do nothing and the market expands?
(H) What is WTC's payoff if they do nothing and the market is stable?
(I) What is WTC's payoff if they do nothing and the market contracts?

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Definitions:

Flappers

Young women of the 1920s whose rebellion against prewar standards of femininity included wearing shorter dresses, bobbing their hair, dancing to jazz music, driving cars, smoking cigarettes, and indulging in illegal drinking and gambling.

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A U.S. law enacted in 1930 that raised import tariffs on thousands of products, contributing to the severity of the Great Depression by restricting international trade.

Conservative

Pertains to a political and social philosophy that emphasizes tradition, established institutions, and prefers gradual development to abrupt change.

Reinhold Niebuhr

An American theologian, ethicist, and commentator on politics and public affairs, known for his influence on political thought, particularly regarding American and Christian realist philosophy.