Dawson Electronics is a manufacturer of high-tech control modules for lawn sprinkler systems. Denise, the CEO, is trying to decide if the company should develop one of the two potential new products, the Water Saver 1000 or the Greener Grass 5000. With each product, Dawson can capture a bigger market share if it chooses to expand capacity by buying additional machines. Given different demand scenarios, their probabilities of occurencse, and capacity expansion versus no change in capacity, the potential sales of each product are summarized in the table:
With Capacity Expansion:
Water Saver 1000 (dollar sales $1000) Greener Grass 5000 (dollar sales $1000) Probability of Occurence
Low demand 1000 2500 .25
Medium demand 2000 3000 .50
High demand 3000 5000 .25
Without Capacity Expansion:
Water Saver 1000 (dollar sales $1000) Greener Grass 5000 (dollar sales $1000) Probability of Occurence
Low demand 700 1000 .25
Medium demand 1000 2000 .50
High demand 2000 3000 .25
A. What is the expected payoff for Water Saver 1000 with capacity expansion?
B. What is the expected payoff for Water Saver 1000 without capacity expansion?
C. What is the expected payoff for Greener Grass 5000 with capacity expansion?
D. What is the expected payoff for Greener Grass 5000 without capacity expansion?