Spencerville Products is expanding its operations west of theMississippi. Its first step is to build a manufacturing facility inDenver to satisfy demand on the West Coast it will not produce anyitems not needed to meet demand. Spencerville has an option tobuild either a large facility that has an annual output of 500,000units per year or a smaller facility with an output of 250,000units per year. It must build one of these two facilities – it doesnot have any other options. The expected demand for the company’sproducts is shown as either high or moderate in the tablebelow:
Demand LevelAnnual DemandProbabilityHigh450,000.6Moderate200,000.4
The small facility
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