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 35 percent; strong acceptance has a probability of 65 percent. The payoffs are as follows. Small job shop, moderate market = $24,000; small job shop, strong market = $54,000. Medium job shop, moderate market = $20,000; medium job shop, strong market = $64,000. Large job shop, moderate market = -$40,000; large job shop, strong market = $96,000. Which capacity choice should the firm make?

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The Answer of 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 35 percent; strong acceptance has a probability of 65 percent. The payoffs are as follows. Small job shop, moderate market = $24,000; small job shop, strong market = $54,000. Medium job shop, moderate market = $20,000; medium job shop, strong market = $64,000. Large job shop, moderate market = -$40,000; large job shop, strong market = $96,000. Which capacity choice should the firm make?

A Firm Is Weighing Three Capacity Alternatives: Small, Medium, and Large