The Waco Tire Company (WTC) is considering expanding production to meet possible increases in demand. WTC's alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. It will cost them $1 million to build a new facility and $600,000 to expand their existing facility. The market for this particular product may expand, remain stable, or contract. ETC's marketing department estimates the probabilities of these market outcomes as 0.30, 0.45, and 0.25, respectively. The expected revenue for each alternative is presented in the table below.
-(A) What is WTC's payoff if they build a new plant and the market expands? (
B) What is WTC's payoff if they build a new plant and the market is stable? (
C) What is WTC's payoff if they build a new plant and the market contracts? (
D) What is WTC's payoff if they expand the plant and the market expands? (
E) What is WTC's payoff if they expand the plant and the market is stable? (
F) What is WTC's payoff if they expand the plant and the market contracts? (
G) What is WTC's payoff if they do nothing and the market expands? (
H) What is WTC's payoff if they do nothing and the market is stable? (
I) What is WTC's payoff if they do nothing and the market contracts?

Question

The Waco Tire Company (WTC) is considering expanding production to meet possible increases in demand. WTC's alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. It will cost them $1 million to build a new facility and $600,000 to expand their existing facility. The market for this particular product may expand, remain stable, or contract. ETC's marketing department estimates the probabilities of these market outcomes as 0.30, 0.45, and 0.25, respectively. The expected revenue for each alternative is presented in the table below. 
-(A) What is WTC's payoff if they build a new plant and the market expands? (
B) What is WTC's payoff if they build a new plant and the market is stable? (
C) What is WTC's payoff if they build a new plant and the market contracts? (
D) What is WTC's payoff if they expand the plant and the market expands? (
E) What is WTC's payoff if they expand the plant and the market is stable? (
F) What is WTC's payoff if they expand the plant and the market contracts? (
G) What is WTC's payoff if they do nothing and the market expands? (
H) What is WTC's payoff if they do nothing and the market is stable? (
I) What is WTC's payoff if they do nothing and the market contracts?

Quizplus · Accepted Answer

The Answer of The Waco Tire Company (WTC) is considering expanding production to meet possible increases in demand. WTC's alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. It will cost them $1 million to build a new facility and $600,000 to expand their existing facility. The market for this particular product may expand, remain stable, or contract. ETC's marketing department estimates the probabilities of these market outcomes as 0.30, 0.45, and 0.25, respectively. The expected revenue for each alternative is presented in the table below. 
-(A) What is WTC's payoff if they build a new plant and the market expands? (
B) What is WTC's payoff if they build a new plant and the market is stable? (
C) What is WTC's payoff if they build a new plant and the market contracts? (
D) What is WTC's payoff if they expand the plant and the market expands? (
E) What is WTC's payoff if they expand the plant and the market is stable? (
F) What is WTC's payoff if they expand the plant and the market contracts? (
G) What is WTC's payoff if they do nothing and the market expands? (
H) What is WTC's payoff if they do nothing and the market is stable? (
I) What is WTC's payoff if they do nothing and the market contracts?

The Waco Tire Company (WTC) Is Considering Expanding Production to Meet