A Firm Is About to Undertake the Manufacture of a Product

question 12

Essay

A firm is about to undertake the manufacture of a product, and it is weighing three capacity alternatives: small job shop, large job shop, and repetitive manufacturing. The small job shop has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit. The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit. Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance, but 2,000 under "strong" market acceptance. The probability of moderate acceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent. The product will sell for $25 per unit regardless of the capacity decision. Which capacity choice should the firm make?

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Definitions:

Glans

The sensitive bulbous structure at the distal end of the penis or clitoris.

Foreskin

The retractable fold of skin covering the glans of an uncircumcised penis, which plays a role in protection and sexual sensitivity.

Corpus Spongiosum

A column of erectile tissue within the penis enclosing the urethra.

Ejaculation

The release of semen from the male reproductive system.