Question: 4. Consider the two capacity options for Arktec Manufactur- ing shown below: FIXED COST (PER YEAR. VARIABLE COST (PERUNIT Option 1 Option 2 SS00 000

4. Consider the two capacity options for Arktec Manufactur- ing shown below: FIXED COST (PER YEAR. VARIABLE COST (PERUNIT Option 1 Option 2 SS00 000 $ 100 000 I $2 perunit $10 per unit Suppose the company has identified the following three possible demand scenarios: DEMAND (UNITS PER YEAR) PROBABILITY 25,000 60,000 100,000 3096 4096 3096 a. (**) What is the expected value of each option? Which option would you choose, based on this information? b. (**) Suppose the lowest and highest demand levels are updated to 40,000 and 110,000, respectively. Recalcu- late the expected values. What happened? c. (**) Draw the decision tree for Arktec Manufacturing. When drawing your tree, assume that managers must select a capacity option before they know what the demand level will actually be. d. (**) Calculate the expected value for each decision branch. Which option would you prefer? Why

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