A Firm Must Choose Between Remaining Where It Is, with Current

question 53

Essay

A firm must choose between remaining where it is, with current capacity, and building a new facility with 50% more capacity. The probability of high demand is estimated to be 75%. The current facility would provide $100,000 profit if there is high demand or $50,000 profit if there is low demand. The replacement facility would provide $160,000,000 profit if there is high demand but would only break even if there is low demand. What is the expected value of each option?

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Definitions:

Psychiatric Disorder

A mental disorder characterized by significant disturbances in an individual's cognitive, emotional, or behavioral functioning.

Antisocial Parents

Parents who exhibit behaviors that are hostile, disruptive, or violating societal norms, potentially influencing their children's behavior negatively.

Substance Use Disorder

Recurrent substance use that results in significant adverse consequences in social or occupational functioning, or use of a substance that impairs one’s performance in hazardous situations, for example drinking and driving.

ADHD

Attention Deficit Hyperactivity Disorder, a neurodevelopmental disorder characterized by problems with focus, hyperactivity, and impulsiveness.