The J.R. Ryland Computer Company is considering a plantexpansion to enable the company to begin production of a newcomputer product. The company’s president must determine whether tomake the expansion a medium- or large-scale project. Demand for thenew product is uncertain, which for planning purposes may be lowdemand, medium demand, or high demand. The probability estimatesfor demand are 0.20, 0.20, and 0.60, respectively. Lettingx and y indicate the annual profit in thousandsof dollars, the firm’s planners developed the following profitforecasts for the medium- and large-scale expansion projects.
| | Medium-Scale Expansion Profit | Large-Scale Expansion Profit |
| | x | | f(x) | y | | f(y) |
| Demand | Low | 50 | | 0.20 | 0 | | 0.20 |
| Medium | 150 | | 0.20 | 100 | | 0.20 |
| High | 200 | | 0.60 | 300 | | 0.60 |
| (a) | Compute the expected value for the profit associated with thetwo expansion alternatives. Round your answers to whole numbers, ifneeded. |
| | EV | | Medium-Scale | | | Large-Scale | |
|
| Which decision is preferred for the objective of maximizing theexpected profit? |
| - Select your answer -Medium-ScaleLarge-ScaleItem 3 |
| |
| (b) | Compute the variance for the profit associated with the twoexpansion alternatives. Round your answers to whole numbers, ifneeded. |
| | Var | | Medium-Scale | | | Large-Scale | |
|
| Which decision is preferred for the objective of minimizing therisk or uncertainty |
