Which work opportunities exceeded the firms capacity

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Reference no: EM131275711

A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: P (low) = .3 and P (high) = .7. Construct a graph that will enable you to perform sensitivity analysis on the problem.

NEXT YEAR'S DEMAND

Alternative LOW-----------HIGH

Do nothing $38*------------------- $59

Expand 8 ---------------- 85

Subcontract 22---------------81

*Profit in $ thousands. Over what range of P (high) would the alternative of doing nothing be best? Expand? Subcontract? (Round your answers to 2 decimal places.) Optimal Ranges

Do nothing 0 to <______________

Expand ______________> to 1.00

Subcontract __________> to <___________

Reference no: EM131275711

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