A Manufacturer of Electrical Machinery Is Located in a Cramped

question 87

Multiple Choice

A manufacturer of electrical machinery is located in a cramped, though low-rent, factory close to the center of a large city. The firm needs to expand, and it could do so in one of three ways: (1) remain where it is and install new equipment, (2) move to a suburban site in the same city, or (3) relocate in a different part of the country where labor is cheaper. Its decision will be influenced by the fact that one of the following will happen: (I) the government may introduce a program of equipment grants, (II) a new suburban highway may be built, or (III) the government may institute a policy of financial help to companies who move into regions of high unemployment. The value to the company of each combination is given in the following payoff matrix. $$\begin{array} { | l | l | l | l | } \hline & \text { I } & \text { II } & \text { III } \\\hline \mathbf { 1 } & 200 & 150 & 140 \\\hline \mathbf { 2 } & 130 & 220 & 130 \\\hline \mathbf { 3 } & 110 & 110 & 220 \\\hline\end{array}$$ If the manufacturer judges that there is a 60% probability that the government will go with option I, a 30% probability that they will go with option II, and a 10% probability that they will go with option III, what is the manufacturer's best option

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Definitions:

Open Account

a method of credit where the seller ships goods or provides services to a buyer under an agreement to bill them later or on a recurring basis.

Assets

Resources owned by a business, expected to bring future economic benefits.

Liabilities

Debts or financial responsibilities that a business has to other entities, requiring repayment over a period through the exchange of economic resources such as cash, products, or services.