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Monte Carlo Simulation Problem
Ice-amole is trying to develop a new product, asparagus flavored ice cream, called "Ice-sparagus."
Ice-amole needs to show its investors that the new product is likely to provide profits that exceed its costs after one year.
The company will build a new factory with a fixed, one-time cost of $25,000.
In the first year, the company expects to produce 5000 gallons.
The cost of raw materials per gallon is modeled as a triangular random variable, with min of $1, most likely of $2, and max of $4.
In the first year, the company expects sales to follow a triangular distribution, with a min of 3000, most likely of 4500, and max of 5000.
The sales price of each gallon is $10.
Use Monte Carlo simulation with 1000 trials to answer the following questions.
Questions
1. What is the expected profit after one year of operation?
2. What is the 95% confidence interval on this expected value?
3. What is the probability of a loss?
4. What should the sales price be increased to in order to reduce the probability of a loss to 10%?