Business, 05.03.2021 01:00 GaudySky

A firm decides whether to produce products by an onshore plant or an offshore plant. The fixed cost and the variable cost of the onshore plant are $40,000 and $1.2, while the fixed cost and the variable cost of the offshore plant are $30,000 and $1.0 (suppose the variable cost includes all costs related to production and transportation). However, although the offshore plant has lower cost, the reliability of the two plants are different: while the onshore plant can always guarantee to satisfy all order request, the offshore plant has 60% probability to meet all order request and 40% probability to satisfy only 80% of the order request. The demand in the next season is 20,000 and the marginal revenue of each unit of product is $5. Question: Which plant should the firm choose?

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A firm decides whether to produce products by an onshore plant or an offshore plant. The fixed cost...

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