Asked by Oscar Gordillo on Jul 07, 2024
Verified
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 30%; strong acceptance has a probability of 70%. The payoffs are as follows. Small job shop, moderate market = $20,000; Small job shop, strong market = $57,000. Medium job shop, moderate market = $25,000; medium job shop, strong market = $84,000. Large job shop, moderate market = -$5,000; large job shop, strong market = $106,000. Which capacity choice should the firm make?
Capacity Alternatives
Different strategies or options available to an organization to adjust or increase its production or service capacity to meet variations in demand.
Market Acceptance
The degree to which a new product or service is accepted and purchased by customers in the market.
- Acquire the ability to interpret and employ the notion of capacity across different business situations.
- Employ probabilistic approaches to decision making in uncertain contexts.
- Recognize the effects of capacity selection on the fiscal success of an enterprise.
Verified Answer
SF
Surafal FelekeJul 11, 2024
Final Answer :
The expected values for the three decision alternatives (capacities) are: small job shop = $45,900; medium job shop = $66,300; and large job shop = $72,700. The firm should choose the large job shop.
Learning Objectives
- Acquire the ability to interpret and employ the notion of capacity across different business situations.
- Employ probabilistic approaches to decision making in uncertain contexts.
- Recognize the effects of capacity selection on the fiscal success of an enterprise.