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1.) Use Microsoft Excel’s Analytic Solver Platform (monte carol simulation) to solve the question below:
A consumer electronics firm produces a line of battery chargers for cell phones. The distributions below apply:
Unit Price: triangular with a minimum of $18.95, most likely value of $24.95, and maximum of $26.95
Unit Cost: uniform with a minimum of $12.00 and a maximum of $15.00
Quantity Sold: 10,000 – 250 Unit price, plus a random term given by a normal distribution with a mean of 0 and a standard deviation of 10
Fixed Costs: normal with a mean of $30,000 and a standard deviation of $5,000
1.) What is the expected profit?
2.) What is the probability of a loss?
3.) What is the maximum loss?
Expert Answer
1) Expected profit = $ 10746.57
2) In the results of Monte Carlo Simulation, we see that the shape of profit curve resembles normal distribution with following parameters
Average profit = $ 10,743
Standard deviation of profit = $ 6842
Therefore probability of loss is computed by determining the cumulative probability distribution under the profit curve, with profit less than or equal to 0.
Corresponding Z value = (0-10743)/6842 = -1.57
Therefore probability of loss = NORMSDIST(-1.57) = 0.0582 or 5.82%
3) Refer Min value of expected profit in the Monte Carlo results sheet.
Maximum loss is the Min value of profit = -19307.94
