# Steps in Simulation Model Building

Essay by Ankit Bhatnagar • March 25, 2016 • Exam • 475 Words (2 Pages) • 990 Views

**Page 1 of 2**

Question 4:

Steps in simulation model building:

- N_weeks_same_price is derived based on number of weeks (prior to the given week), where the price has been set at p. and demand is assigned a normal distribution with mean (200 – p – 0.5*N_weeks_same_price) and standard deviation equal to mean/3.
- Adjusted demand is calculated by subtracting quantity sold till the current week from the inventory of 2000 units as restocking is not permitted.
- Revenue is populated based on adjusted demand and current price.
- Total revenue is calculated by adding revenues of individual weeks and revenue of unsold items at the end of 15 weeks period if any.

Results:

- Below output is of pricing policy 1.

- Mean revenue : $107,818
- SD: $2733.
- 95% CI : $100,582 – $111,121

[pic 1]

- Results of Pricing policy2

- Mean revenue : $ 102,370
- SD: $3,460
- 95% CI : $94,938 – $108,707

[pic 2]

- So, it clearly turns out that pricing policy 1 is effective than policy 2 with high revenues and less dispersion.

Question 5:

- Each tree gives a profit of $30 and a loss of -$45 if unsold, so in order to break even manager should sell 60% of the inventory and profits starts for sales above 60%. This is the tradeoff manager faces while deciding how much inventory to purchase.

- Simulation model was built as follows:

- Demand was assigned discrete distribution.
- Total profit was calculated as adjusted demand (demand greater than inventory is negated) X profit + unsold X loss.
- Results are as follows:

- Mean revenue : $ 3717
- SD: $2403
- 78% probability of getting profit
- Approximately 60% probability of selling the entire inventory.

[pic 3]

- It was clearly seen that there is 21.4% probability of getting loss if we assume that demand follows a discrete distribution.

- If we assume normal distribution for demand then the results are as follows:

- 90% probability of getting profit.
- Only 10% chances of loss.

[pic 4]

Question 6:

- Results of simulation model is as follows:

- Expected value of profit: $1.6 million
- Standard deviation: $0.2 million

[pic 5]

- If the company accepts marketing firm’s advertising campaign then the results are as follows:

- Expected value of profit: $1.64 million
- Standard deviation: $1.4 million

[pic 6]

- It is reasonably good choice to accept marketing firm’s advertising campaign as there is a high expected value and a large right skewed dispersion of profit.

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