Under a favorable market, which option yields the highest payoff among Large Plant, Small Plant, and Subcontracting?

• A. Small Plant
• B. Subcontracting
• C. Large Plant
• D. None

Answer: (C)

In a favorable market, the payoff rises with the amount you can produce and sell. The Large Plant offers the greatest capacity, so you can meet high demand and generate more revenue. Fixing costs are spread over a larger output, reducing the average cost per unit, while variable costs per unit may be lower at scale. This combination boosts total profit when prices are favorable. The Small Plant has limited output, capping potential revenue. Subcontracting can be flexible but often carries higher per-unit costs or less control, which reduces total payoff under strong demand. So the largest production option yields the highest payoff.