Question: This exercise is based on one in Hartman ( 2 0 0 7 ) . A pharmaceutical company needs to use a supercomputer to run

This exercise is based on one in Hartman (2007). A pharmaceutical company needs to use a supercomputer to run simulation models as part of its research on cures for AIDS, cancer, and other diseases. The firm expects to perform thousands of simulation runs per year for the next 3 years. The firm can purchase a supercomputer for $2.5 million; the annual operating and maintenance costs are $200,000 per year, and the supercomputer can perform 15,000 runs per year. For every simulation run above 15,000 in a year, the operating costs rise $1,000 per year to cover the needed overtime. A second alternative is to outsource the simulation runs to an IT firm that offers supercomputing services on demand. They will charge the pharmaceutical company $400 $200 per simulation run. Consider a 3-year time horizon, and assume that the number of runs per year is the same every year. The firm is not sure how many simulation runs they will need to perform each year. What is the range of total cost if the number of simulation runs varies from 10,000 to 20,000 runs per year? For what range of activity (number of simulation runs per year) is purchasing a supercomputer the lowest cost alternative? (Hint: Don't use random numbers for this simulation. Instead, create your cost model and vary the input from 10,000 to 20,000 runs in increments of 10 runs, then plot the resulting cost and analyze.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!