Question: Using the generic profit model developed in the section Logic and Business Principles in Chapter 9, develop a financial simulation model for a new product
Using the generic profit model developed in the section Logic and Business Principles in Chapter 9, develop a financial simulation model for a new product proposal and construct a distribution of profits under the following assumptions: Price is fixed at $1,000. Unit costs are unknown and follow the distribution.
Unit Cost Probability | Probability |
$400 | 0.20 |
$600 | 0.40 |
$700 | 0.25 |
$800 | 0.15 |
Demand is also variable and follows the following distribution
Demand | Probability |
120 | 0.25 |
140 | 0.50 |
160 | 0.25 |
Fixed costs are estimated to follow the following distribution:
Fixed Costs | Probability |
$45,000 | 0.25 |
$50,000 | 0.50 |
$55,000 | 0.30 |
Implement your model using Crystal Ball to determine the best production quantity to maximize the average profit. Would you conclude that this product is a good investment?
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