QNT561 Week 3 Expansion Strategy and Establishing a Re-Order Point- Bell Computer Case

Case 1: Bell Computer Company

The Bell Computer Company has two expansion options: medium scale, and large scale. For both options, demand can be low, medium, or high with probability of 0.2, 0.5, and 0.3 respectively. For medium scale expansion, profits in case of low, medium and high demand are $50,000 , $150,000 and $200,000 respectively. For large scale expansion, profits in case of low, medium, and high demand are $0, $100,000 and $300,000 respectively. The large scale option has potential to generate higher profit, but there is also probability of generating nil profit if demand is low. So, large-scale expansion is riskier than the low-scale expansion.