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Retread Tire Company

2. The Retread Tire company recaps tires. The fixed annual cost of the recapping operation is $60,000. The variable cost of recapping a tire is $9. The company charges $25 to recap a tire.

a. For an annual volume of 12,000 tires, determine the total cost, total revenue, and profit.
b. Determine the annual break-even volume for the Retread Tire Company operation.

16. For the doll-manufacturing enterprise described in problem 7, Andy Mendoza has determined that $10,000 worth of advertising will increase sales volume by 400 dolls. Should he spend the extra amount for advertising?

18. The General Store at State University is an auxiliary bookstore located near the dormitories that sells academic supplies, toiletries, sweatshirts and T-shirts, magazines, packaged food items, and canned soft drinks and fruit drinks. The manager of the store has noticed that several pizza delivery services near campus make frequent deliveries. As such, the manager is considering selling pizza at freezer would be $27,000. the frozen pizzas cost $3.75 each to buy from a distributor and to prepare (including labor and a box). To be competitive with the local delivery services, the manger believes she should sell the pizzas for $8.95 apiece. The manager needs to write up a proposal for the university's director of auxiliary services.

a. Determine how many pizzas would have to be sold to break even.
b. If the General Store sells 20 pizzas per day, how many days would it take to break even?
c. The manager of the store anticipates that once the local pizza delivery services start losing business they will react by cutting prices. If after a month (30 days) the manger has to lower the price of a pizza to $7.95 to keep demand at 20 pizzas per day, as she expects, what will the new break-even point be, and how long will it take the store to break even?

Chapter 2

8. A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shown the profit or loss that could result from each investment.

Gasoline Availability

Investment Shortage Stable Supply Surplus

Motel $-8,000 $15,000 $20,000
Restaurant 2,000 8,000 6,000
Theater 6,000 6,000 5,000

Determine the best decision using the following decision criteria.

a. Maximax
b. Maximin
c. Minimax regret
d. Hurwicz (x=.60)
e. Equal likelihood

30. Assume that the probabilities of demand in problem 28 are no longer valid; the decision situation is not one without probabilities. Determine the best number of cards to stock using the following decision criteria.

a. Maximin
b. Maximax
c. Hurwicz (x=.4)
d. Minimax regret

36. The machine shot owner in problem 15 is considering hiring a military consultant to ascertain whether the shop will get the government contract. The consultant is a former military officer who uses various personal contacts to find out such information. By talking to other shop owners who have hired the consultant, the owner has estimated a .70 probability that the consultant would present a favorable report given that the contract is awarded to the shop, and a .80 probability that the consultant would present an unfavorable report given that the contract is not awarded. Using decision tree analysis, determine the decision strategy the owner should follow, the expected value of this strategy, and the maximum fee the owner should pay the consultant.


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