The owner of Pearl Automotive Dealers is trying to decide whether to expand his

Question

The owner of Pearl Automotive Dealers is trying to decide whether to expand his current facility. If he expands and customer demand turns weak, there is a chance he could lease part of his newly constructed facility to another dealer. If he doesn't expand and strong demand occurs, he could attempt to lease another facility across town. What is the best set of decisions and the expected payoff?

Fill in the blank choose correct answer from parenthesis.

"The best decision is to (expand facility/do not expand facility) and if (weak/strong) product demand occurs, choose (Lease new facility/ do not lease facility)

Explanation / Answer

The best decision is to (expand facility) and if (weak) product demand occurs, choose (Lease new facility).

In first situation if the owner expands its facility and demand turns weak, he could lease a part of the facility. On the other hand if he does not expand and strong demand occurs he could lease another facility. Therefore the best decision would be to expand the facility.

As per first situation, if weak product demand takes place then the owner should lease new facility.

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