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A firm is about to undertake the manufacture of a product, and is weighing 3 capacity alternatives: small job shop, large job shop, and repetative manufacturing. The small job has a fixed cost of $3000 per month, and variable cost of $10 per unit. The larger job shop has a fixed cost of $12,000 per month, and a variable cost of $3 per unit. The repetative manufacturing plant has a fixed cost of $30,000, and a variable cost of $1 per unit. Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance, but 2,000 under "strong" market acceptance. The probability of moderate acceptance is expected to be 60 percent; strong acceptance has a probability to be 40 percent. The product will sell for $25 per unit regardless of the capacity decision. Which capacity choice should the firm make and show why that is the case.
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