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The J. R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company's

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The J. R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company's president must determine whether to make the expansion a medium- or largescale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.30, 0.50, and 0.20, respectively. Letting x and y indicate the annual prot in thousands of dollars, the rm's planners developed the following prot forecasis for the medium- and large-scale expansion projects. Medium-Stale Expansion Prot Large-Scale Expansion Prot x x) y y) Low 50 0.30 O 0.30 Demand Medium 150 0.50 100 0.50 High 200 0.20 300 0.20 (a) Compute the expected value (in thousands of dollars) for the prot associated with the two expansion alternatives. I: thousand dollars E thousand dollars Which decision is preferred for the objective of maximizing the expected prot? MediumScale Large-Scale The Medium-Scale v v Expansion Prot forecast is preferred for the objective of maximizing the expected prot. (b) Compute the variance for the profit associated with the two expansion alternatives. E Q Which decision is preferred for the objective of minimizing risk or uncertainty? The Medium-Scale v J Expansion Prot forecast is preferred for the objective of minimizing risk or uncertainty. Medium-Scale LargeScale

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