Final answer:
Firms have three alternatives when it comes to danger zone customers: ignore, invest, or terminate the relationship. Choosing production technology based on the lowest total cost and market-oriented tools for pollution reduction offers flexibility and cost-effectiveness. The comparison between Plan A and Plan B in the face of a tornado illustrates asymmetric risk assessment and decision making.
Step-by-step explanation:
When considering how to deal with danger zone customers, firms typically have three alternatives:
The scenario provided also discusses a firm's choice of production technology based on cost efficiencies. When machine hours are cheaper, it would indeed be sensible for a firm to choose production technology 3, which leverages more machines and less labor, resulting in the lowest total cost.
Regarding environmental strategies, market-oriented tools for reducing pollution tackle complaints about command-and-control regulation by introducing flexibility, cost-effectiveness, and incentivizing innovation. Firms have the discretion to choose the most efficient approach tailored to their circumstances.
In the context of preparing for a natural disaster such as a tornado, evaluating the circumstances and outcomes involves assessing the risks and making decisions on whether to take preventative measures (Plan B) or do nothing (Plan A). The decisions' costs and the impacts of those decisions post-event reflect on the concepts of asymmetric risk and the importance of being prepared.