The Construction Manager for Acme Construction, Inc

question 8

Essay

The construction manager for Acme Construction, Inc. must decide whether to build single family homes, apartments, or condominiums. This is not a product-mix problem, but an all-or-nothing decision. He will hire workers and rent equipment appropriate for one action only. He estimates annual profits (in thousands of dollars) will vary with population trends as follows:
(a) If he uses the maximin criterion, which type of dwellings will he choose to build? Show your supporting calculations.
(b) If he uses the equally likely criterion, which kind of dwellings will he choose to build? Show your supporting calculations.
(c) If the construction manager were an optimist, what criterion would he choose? What would be the choice of dwelling for that criterion? Show your supporting calculations.

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Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price point.

Equilibrium Price

The cost level where the amount of a product or service that consumers want to buy equals what is available, resulting in a balanced market situation.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity supplied.

Elasticity Coefficients

Numerical measures that indicate how much the quantity demanded or supplied of a good responds to changes in price, income, or other factors.