Market demand for firm product can be moderate or strong

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Reference no: EM132113899

A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market demand for the firm's product can be "moderate" or "strong." The probability of moderate market demand is estimated to be 0.4; the probability of strong market demand is estimated to be 0.6. The anticipated profits are as follows:

a. Small job shop: moderate market demand = $24,000; strong market demand = $54,000.

b. Medium job shop: moderate market demand = $20,000; strong market demand = $64,000.

c. Large job shop: moderate market demand = -$2,000; strong market demand = $96,000.

Referring to Scenario 3 above, your director wants to increase the probability of moderate market demand to 0.5, without changing any other probabilities (i.e., he wants to keep the probability of strong market demand at 0.6). What should you do?

recalculate the EMV for the Medium job shop and report the revised (in any) recommended decision

politely inform your director that this is not possible; the sum of all probabilities for market demand needs to equal 1

recalculate the EMV for the Small job shop and report the revised (in any) recommended decision

recalculate the EMV for the Large job shop and report the revised (in any) recommended decision

collectively recalculate all EMVs and report the revised (in any) recommended decision

Reference no: EM132113899

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