The Operations Manager for a Well-Drilling Company Must Recommend Whether

question 24

Multiple Choice

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows:
If he uses the maximax criterion, which alternative will he decide to select?

• A) do nothing
• B) expand
• C) build new
• D) either do nothing or expand
• E) either expand or build new

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Definitions:

Supply Elasticity

Measures how the quantity supplied of a good responds to a change in the price of that good.

Market Supply Curve

A graphical representation of the quantity of goods and services that suppliers are willing and able to sell at various prices during a given period.

Complements

Goods or services that are used together, where the demand for one is increased when the price of the other decreases.