1. Manufacturing must choose between the following two capacity options:

	Fixed cost (per year)	Variable cost (per year)
Option 1	$600,000	$1 per unit
Option 2	$200,000	$8 per unit

1. What would be the cost for each option if the demand level is 25,000 units per year? If it is 85,000 units per year?
2. In general, which option do you think would be better as volume level increase? As they decrease?

Suppose the company has identified the following three possible demand scenarios:

Demand (units per year)	Probability
25,000	40%
60,000	40%
100,000	20%

1. What is the expected value of each option? Which option would you choose, based on this information?
2. Suppose the lowest and highest demand levels are updated to 40,000 and 110,000 respectively. Recalculate the expected values. What happened?
3. Manufacturing must choose between the following two capacity options:

	Fixed cost (per year)	Variable cost (per year)
Option 1	$600,000	$1 per unit
Option 2	$200,000	$8 per unit

1. What would be the cost for each option if the demand level is 25,000 units per year? If it is 85,000 units per year?
2. In general, which option do you think would be better as volume level increase? As they decrease?

Suppose the company has identified the following three possible demand scenarios:

Demand (units per year)	Probability
25,000	40%
60,000	40%
100,000	20%

1. What is expected value of each option? Which option would you choose, based on this information?
2. Suppose the lowest and highest demand levels are updated to 40,000 and 110,000 respectively. Recalculate the expected values. What happened?