Q2.         Capacity Decisions

Consider the two capacity options for Arktec Manufacturing shown below:

1. What is the expected value of each option? Which option should be chosen based on these values?
2. If the lowest and highest estimates are updated to 40,000 and 110,000 respectively, what would be the updated expected values? Explain what has happened.
3. Draw the decision tree for Arktec Manufacturing using initial data. You are to assume that a capacity option is chosen before demand levels are known. (15 marks)

Calculate the expected value for each branch. Which option would you choose and why?