In a capacity-expansion decision scenario, payoffs under a favorable market are Large Plant 13, Small Plant 5, Subcontracting 7; and under a moderate market are 2, 8, 3 respectively. Which option yields the highest payoff in a favorable market?

• A. Small Plant
• B. Subcontracting
• C. Large Plant
• D. None of the above

Answer: (C)

When comparing options in a favorable market, you look at the payoffs for that scenario. The favorable-market payoffs are: Large Plant = 13, Subcontracting = 7, Small Plant = 5. The highest value is 13, which comes from expanding with a Large Plant. So choosing the Large Plant yields the best payoff in a favorable market. The other options give smaller payoffs (7 and 5), so they are not as good under this scenario.