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A Firm Is Weighing Three Capacity Alternatives: Small, Medium, and Large

question 118

Essay

A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 35 percent; strong acceptance has a probability of 65 percent. The payoffs are as follows. Small job shop, moderate market = $24,000; small job shop, strong market = $54,000. Medium job shop, moderate market = $20,000; medium job shop, strong market = $64,000. Large job shop, moderate market = -$40,000; large job shop, strong market = $96,000. Which capacity choice should the firm make?


Definitions:

Validity

Degree of correspondence between a measurement and the phenomenon under study.

Constructability

A concept in engineering that assesses how efficiently a structure or system can be built, considering all practical aspects of construction.

Generalizability

The extent to which findings from a study or research can be applied to broader contexts or with different groups.

Reliability

Degree of consistency in a measurement— that is, the extent to which it yields accurate measurements of a phenomenon across several trials, across different populations, and in different forms.

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