Submit in the PDF file. Use SilverDecisions package (see https://silverdecisions.pl/ and include a snapshot of the tree diagram in the PDF file.]
A manufacturer of mobile phones currently outsources the screens of phones produced. Recently, the company has started to investigate the possibility of producing the screens in the house with details outlined below:
- In case the company decides to produce onsite, they have to consider uncertainty in the mobile phone demand as it will impact the whole production process and the resulting costs as well as profits.
- If the demand for the mobile phones is high (which has an estimated probability of 60%), the company may increase the production, which raises an additional uncertainty about the ability of the market to absorb the increased production. It is estimated that there is 45% chance that the company will be able to sell all produced. In this case, the unit profit will be $18. However, if the company cannot sell all produced, then the company will have to reduce the selling price of the phones drastically, which will lower the unit profit to $13. If the company doesn't increase the production even if the demand for the mobile phones is high, the unit profit is estimated to be $15.
- If the demand for the mobile phones is low, the unit profit is estimated to be only $7 due to increased production cost per phone.
- If the company continues outsourcing, the supplier will be able to supply screens as needed and in a timely fashion. However, there is a probability that the supplier may change the selling price of a screen.
- There is an estimated 30% chance that the price of the screens will increase, which will lower the unit profit from a mobile phone sale to $8.
- There is an estimated 15% chance that the price of the screens may decrease, which will lead to a unit profit of $12.
- If the selling price of the screens stays the same, then the unit profit will be $10.
Conduct the decision tree analysis and indicate the best decision(s) for the manufacturer to maximize the expected unit profits. Remark: You need to make sure that you label every node and every branch appropriately so that one can understand and read your tree without referring to the text.