Question: As operations of Kims Furniture, you must make a decision about adding a line of rustic furniture. Indiscussing the possibilities with your sales manager, Yuriy

As operations of Kims Furniture, you must make a decision about adding a line of rustic furniture. Indiscussing the possibilities with your sales manager, Yuriy Kim, you decide that there will definitely be amarket and that your firm should enter that market. However, because rustic furniture has a different finishthan your standard offering, you decide you need another process line. There is no doubt in your mind aboutthe decision, and you are sure that you should have a second process. But you do question how large tomake it. A large process line is going to cost $400,000; a small process line will cost $300,000. Thequestion, therefore, is the demand for rustic furniture. After extensive discussion with Mr. Kim and ArturMynbayev of Almaty Market Research, Inc., you determine that the best estimate you can make is thatthere is a two-out-of-three chance of profit from as large as $600,000 and a one-out-of-three chance as lowas $300,000.With a large process line, you could handle the high figure $600,000. However, with a small process lineyou could not and would be forced to expand (at a cost of $150,000), after which time your profit fromsales would be $500,000 rather than the $600,000 because of the lost time in expanding the process. If youdo not expand the small process, your profit from sales would be held to $400,000. If you build a smallprocess and the demand is low, you can handle all of the demand.Should you open a large or small process line?

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