uppose the probabilities of the three scenarios are estimated to be 0.15, 0.40, and 0.45, respectively. Construct a decision tree and compute the rollback values to find the best expected value decision.
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The Door Co Corporation is a leading manufacturer of garage doors. All doors are manufactured in their plant in Carmel, Indiana, and shipped to distribution centers or major customers. Door Co recently acquired another manufacturer of garage doors, Wisconsin Door, and is considering moving its wood door operations to the Wisconsin plant. A key consideration in this decision is the transportation and production costs at the two plants and the new construction and relocation costs. Complicating matters is the fact that marketing is predicting a decline in the demand for wood doors. The company developed three scenarios: 1. Demand falls slightly, with no noticeable effect on production. 2. Demand and production decline 20%. 3. Demand and production decline 45%. The table below shows the total costs under each decision and scenario. a. What decision should Door Co make using the average payoff, aggressive, conservative, and opportunity loss decision strategies discussed in this chapter? b. Suppose the probabilities of the three scenarios are estimated to be 0.15, 0.40, and 0.45, respectively. Construct a decision tree and compute the rollback values to find the best expected value decision.
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