Question: How to solve ( Subject: operations management ) A firm that plans to expand its product line must decide whether to build a small or
How to solve Subject: operations management
A firm that plans to expand its product line must decide whether to build a small or a large facility to produce the new products.
If it builds a small facility and demand is low, the profit will be $ If demand is high, the firm can either maintain the small facility or expand it The expansion would have a profit of $ and maintaining the small facility would have a profit of $
If a large facility is built and demand is high, the profit will be $ If demand turns out to be low, the profit will be $
The probability that demand will be high is estimated to be and the probability of low demand is estimated to be
a Construct a decision tree to select the proper size of plant pts
b What is the expected payoff of building small facility? pts
c What is the expected payoff of building large facility? pts
d Which option building small vs large facility should be selected? Why? pts
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