Answered: The management of Brinkley Corporation…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows.

Procurement Cost ($)	Probability	Labor Cost ($)	Probability	Transportation Cost ($)	Probability
10	0.20	20	0.15	3	0.75
11	0.45	22	0.20	5	0.25
12	0.35	24	0.35
		25	0.30

(a)

Compute profit (in $) per unit for the base-case scenario.

$ per unit

(b)

Compute profit (in $) per unit for the worst-case scenario.

$ per unit

(c)

Compute profit (in $) per unit for the best-case scenario.

$ per unit

(d)

Construct a simulation model to estimate the average profit (in $) per unit and the variance of the profit per unit. (Use at least 1,000 trials. Round your answer to two decimal places. Use the values you enter to make later calculations.)

average$ variance

What is a 95% confidence interval (in $) around this average? (Round your answers to two decimal places.)

$ to $

(e)

Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?

A simulation model does not require the use of as many variables as a what-if scenario does and does not rely on as many assumptions.A simulation model provides the maximum and minimum possible profit per unit values which allows the analyst to determine how severe potential losses may be. A simulation model provides a distribution of profit per unit values allowing the analyst to compute the likelihood of profit per unit to be in a specified range.A simulation model is significantly easier to develop and verify than a set of what-if scenarios.

(f)

Management believes that the project may not be sustainable if the profit per unit is less than $5. Use simulation model from part (d) to estimate the probability that the profit per unit will be less than $5. (Use at least 1,000 trials. Round your answer to three decimal places. Use the value you enter to make later calculations.)

What is a 95% confidence interval around this proportion? (Round your answers to three decimal places.)

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