Two Buns Burger Joint Is Weighing Three Capacity Expansion Alternatives

question 5

Short Answer

Two Buns burger joint is weighing three capacity expansion alternatives: small, medium, and large shops. Whatever capacity choice is made, the market conditions for the burgers can be described as "moderate" or "strong." The probability of a moderate market situation is estimated to be 40 percent; and a strong market situation has a probability of 60 percent. The payoffs are as follows.
$$\begin{array} { | l | c | c | } \hline & \text { Moderate Market Conditions } & \text { Strong Market Conditions } \\\hline \text { Small shop } & \$ 25,000 & \$ 50,000 \\\hline \text { Medium shop } & \$ 20,000 & \$ 70,000 \\\hline \text { Large shop } & - \$ 5,000 & \$ 90,000 \\\hline\end{array}$$ Which capacity choice should the company make?

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Definitions:

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