The US has a big market for pet toys. The operations manager…
The US has a big market for pet toys. The operations manager of Squeakers, a pet toy manufacturing company is now seriously thinking of adding a new production line for a special type of pet toys. There are two options of production lines that Squeakers can choose: Advanced production line and Standard production line. The former will cost Squeakers $400, 000; and the latter will only cost $300, 000. The market for the special pet toy is believed to be high at $600,000 at 2/3 chance, and low at $300,000 at 1/3 chance. When the market is high, the advanced production line is capable of handling the high figure of $600,000. However, a standard production line needs some expansion at a cost of $150,000. After the expansion, the sales would be $500,000 due to the lost time during the expansion. If the standard production line is not expanded, the sales would be only $400,000. When the market is low, both production lines are able to satisfy all of the demand. If the market is low, what is the net profit if you build an advanced line?