Question 5: 6 points A manufacturer must decide whether to build a small or a large plant at a new location. The decision is represented in Figure 1. Briefly, demand at the new location can be small or large. If a small plant is built, and demand is large, the production manager may choose to maintain the current size or to expand. If a small facility is built and demand is small, there is no reason to expand. However, if a large facility is built and the demand and the demand turns out to be small, the choice is to do nothing or to stimulate demand through local advertising. In analyzing this decision, the decision analyst, who has taken OIE 542, created Figures 2, 3 and 4. What would you recommend the manufacturer do? What other information from Figures 2,3 and 4 could you use to support your recommendation? How should the manufacturer interpret Figures 1 through 4? For full credit name type of analysis shown in each figure. Do Nothing FALSE 40000 0.0% 40000 40.0% Low Demand Decision 160000 30.0% 12.0% Modest Response 20000 20000 TRUE Chance Advertise 160000 Favorable Response 70.0% 220000 28.0% 220000 Build a large plant TRUE Chance 544000 High Demand 60.0% 800000 60.0% 800000 -Plant Location Decision 544000 Build a small plant FALSE 0.0% Maintain size 223000 223000 High Demand 60.0% Decision 270000 High Return 50.0% 330000 0.0% 330000 TRUE Chance Expand 270000 Low Return 50.0% 210000 0.0% 210000 FALSE Chance 242000 40.0% Low Demand 200000 0.0% 200000 Figure 1 Decision Tree for Plant Location Selection Expected Value Cumulative Probability 100% 80% Cumulative Probabilities for Decision Tree 'Plant Location' Choice Comparison for Node Decision 60% 40% Precision Tree Course Version Worcester Polytechnic Institute Build a large plant Build a small plant 20% 9 Figure 2 800000 750000 700000 650000 600000 550000 500000 450000 400000 350000 300000 250000 Figure 4 960'09 40.0% -20.0% Precision free Course Version Worcester Polytechnic Institute %60'0 Change in Input (%) 20.0% 40.0% 960'09 8 2 Probability 30% Figure 3 Large Plant High Demand (F29) Large Plant Low Demand Favorable Response (H25) Small Plant High Demand Maintain Size (G33) Probabilities for Decision Tree 'Plant Location" Choice Comparison for Node 'Decision Precision Tree Course Version Worcester Polytechnic Institute + Build a large plant +Build a small plant 400000- 000005 000009 000006