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. The file P06_38.xlsx contains Carlisle’s estimated payoff (in dollars) table.
a. Use Precision Tree 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. In response to which monetary inputs is the expected profit value most sensitive?