Careful analysis relevant to each case study and its questions is required. Ensure that you succinctly address the critical elements.
Put key concepts in formulating the problem for Monte Carlo simulation, developing the layout, using appropriate formulas for creating demand distribution, preparing data tables, and using Excel simulation for the specified number of iterations, finding solutions, and correctly interpreting outputs to answer the questions asked.
Your analysis of the questions posed must demonstrate an excellent understanding of the use and limitations of Monte Carlo Simulation.
Your answer must draw informed conclusions that are justified with evidence from the outputs and correctly interpreting results related to questions asked.
1. Chelsea Truman sells celebrity magazines on Sunday morning in an area surrounded by three busy shopping centers. Demand for the magazines is distributed as shown in the following table:
|
DEMAND
|
PROBABILITY
|
|
50
|
0.05
|
|
75
|
0.10
|
|
100
|
0.25
|
|
125
|
0.30
|
|
150
|
0.20
|
|
175
|
0.10
|
Chelsea has decided to order 100 magazines from her supplier. Chelsea pays $2 for each magazine she orders and sells each magazine for $3. Unsold magazines can be returned to the supplier for $0.75.
(a) Simulate 1 year (52 Sundays) of operation to calculate Chelsea's total yearly profit. Replicate this calculation N times. What is the average yearly profit?
(b) Chelsea would like to investigate the profit ability of ordering 50, 100, 150, and 175 magazines at the start of each Sunday. Which order quantity would you recommend? Why?
2. The Paris Bakery has decided to bake 30 batches of its famous beignets at the beginning of the day. The store has determined that daily demand will follow the distribution shown in the following table:
|
DAILY DEMAND
|
PROBABILITY
|
|
15
|
0.08
|
|
20
|
0.12
|
|
25
|
0.25
|
|
30
|
0.20
|
|
35
|
0.20
|
|
40
|
0.15
|
Each batch costs the Paris Bakery $50 and can be sold for $100. The Paris Bakery can sell any unsold batches for $25 the next day.
(a) Simulate 1 month (25 days) of operation to calculate the bakery's total monthly profit. Replicate this calculation N times to compute the average total monthly profit.
(b) The Paris Bakery would like to investigate the profitability of baking 25, 30, 35, or 40 batches at the start of the day. Which quantity would you recommend? Why?