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    Thu Thảo
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    This document outlines a formula to calculate the expected payoff of different capacity alternatives for a firm. It shows the application of the formula to calculate the expected payoffs of small, medium, and large job shop options which are $42,000, $46,400, and $56,800 respectively. Based on the highest expected payoff, the document recommends the firm choose the large job shop option as its capacity.

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    This document outlines a formula to calculate the expected payoff of different capacity alternatives for a firm. It shows the application of the formula to calculate the expected payoffs of small, medium, and large job shop options which are $42,000, $46,400, and $56,800 respectively. Based on the highest expected payoff, the document recommends the firm choose the large job shop option as its capacity.

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    2 views1 page

    Chegg

    Uploaded by

    Thu Thảo
    This document outlines a formula to calculate the expected payoff of different capacity alternatives for a firm. It shows the application of the formula to calculate the expected payoffs of small, medium, and large job shop options which are $42,000, $46,400, and $56,800 respectively. Based on the highest expected payoff, the document recommends the firm choose the large job shop option as its capacity.

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    of 1

    Expected payoff of any capacity alternative

    = Probability of moderate acceptance x Payoff of moderate acceptance + Probability of


    strong acceptance x Payoff of strong acceptance

    = 0.40 x Payoff of moderate acceptance + 0.60 x Pay off of strong acceptance

    Thus Pay off for small job shop option

    = 0.40 x 24000 + 0.6 x 54000

    = 9600 + 32400

    = $42,000

    Pay off for medium job shop option

    = 0.40 x 20000 + 0.60 x 64000

    = 8000 + 38400

    = $ 46,400

    Pay off for large job shop option

    = - 0.40 x 2000 + 0.60 x 96000

    = - 800 + 57600

    = $56,800

    Since expected payoff for large job shop option is highest, firm should make large job
    shop option as capacity choice

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