A firm is about to undertake the manufacture of a product, and it is weighing three capacityalternatives: small job shop, large job shop, and repetitive manufacturing. The small jobshop has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger jobshop has fixed costs of $12,000 per month and variable costs of $3 per unit. The repetitivemanufacturing plant has fixed costs of $30,000 per month and variable costs of $1 per unit.Demand for the product is expected to be 1,000 units per month with "moderate" marketacceptance, but 2,000 under "strong" market acceptance. The probability of moderateacceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent.The product will sell for $25 per unit regardless of the capacity decision. Which capacitychoice should the firm make?
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Oct 14, 2020EXPERT
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