Carlisle Tire and Rubber, Inc., is considering expanding production to meet potential increases in the demand for one of its tire products. Carlisle’s alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. The market for this particular tire product may expand, remain stable, or contract. Carlisle’s marketing department estimates the probabilities of these market outcomes to be 0.25, 0.35, and 0.40, respectively. The file P09_31.xlsx contains Carlisle’s payoffs and costs for the various combinations of decisions and outcomes. a. Use PrecisionTree to identify the strategy that maximizes this tire manufacturer’s expected profit. b. Perform a sensitivity analysis on the optimal decision, letting each of the monetary inputs vary one at a time plus or minus 10% from its base value, and summarize your findings. Which of the inputs appears to have the largest effect on the best solution?
Carlisle Tire and Rubber, Inc., is considering expanding production to meet potential increases in the demand for one of its tire products. Carlisle’s alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. The market for this particular tire product may expand, remain stable, or contract. Carlisle’s marketing department estimates the probabilities of these market outcomes to be 0.25, 0.35, and 0.40, respectively. The file P09_31.xlsx contains Carlisle’s payoffs and costs for the various combinations of decisions and outcomes.
a. Use PrecisionTree to identify the strategy that maximizes this tire manufacturer’s expected profit.
b. Perform a sensitivity analysis on the optimal decision, letting each of the monetary inputs vary one at a time plus or minus 10% from its base value, and summarize your findings. Which of the inputs appears to have the largest effect on the best solution?
| Tire plant decisions | |||
| Decision\outcome | Expand | Remain stable | Contract |
| Construct a new plant | $400,000 | -$100,000 | -$200,000 |
| Expand existing plant | $250,000 | -$50,000 | -$75,000 |
| Do nothing | $50,000 | $0 | -$30,000 |
| Probability | |||
| Expand | 0.25 | ||
| Remain stable | 0.35 | ||
| Contract | 0.40 |
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