A manager is deciding whether to build a small or a large facility. Much depends on the future demand that the facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of future revenues minus costs for each alternative in each event.What is the best choice if future demand will be low?
A manager is deciding whether to build a small or a large facility. Much depends on the future demand that the facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of future revenues minus costs for each alternative in each event.What is the best choice if future demand will be low?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A manager is deciding whether to build a small or a large facility. Much depends on the future demand that the
facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will
result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of
future revenues minus costs for each alternative in each event.What is the best choice if future demand will be low?
Transcribed Image Text:POSSIBLE FUTURE DEMAND
Alternative
Low
High
Small facility
200
270
Large facility
160
800
Do nothing
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