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:

Environmental Influences

External factors that can affect an individual's development, behavior, mood, and health, including social, cultural, and physical environmental aspects.

Success Rate

The proportion or percentage of attempts that result in success, often used in the context of surgical procedures, treatments, or other endeavors.

Sex

A biological categorization based on reproductive organs and functions, typically categorized as male or female.

Prediction

The act of forecasting or estimating future events based on current information or trends.