Consider again Carlisle Tire and Rubber’s decision problem described in Problem 2. Use the PrecisionTree add-in to identify the strategy that maximizes this tire manufacturer’s expected profit. Also, perform sensitivity analysis on the optimal decision and summarize your findings. In response to which model inputs is the expected profit value most sensitive?

Problem 2

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 as 0.25, 0.35, and 0.40, respectively. Table 7.6 contains Carlisle’s estimated payoff (in dollars) table. 

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TABLE 7.6 Payoff Table for Carlisle's Decision Problem Market Expands 400,000 250,000 50,000 Decision/Market Outcome Construct a New Plant Expand Existing Plant Do Nothing Market Stable - 100,000 -50,000 0 Market Contracts -200,000 -75,000 -30,000