The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation costare estimated as follows:ProcurementCost($)10$1112Probability0.250.450.30LaborCost ($)20222425Probability0.100.250.350.30TransportationCost ($)35(a) Compute profit per unit for the base-case, worst-case, and best-case scenarios.Base Case using most likely costsProfit = $/unitWorst CaseProfit = $/unitBest CaseProfit = $/unitProbability0.750.25(b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.)(c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?Simulation will provide ---Select---of the profit per unit values which can then be used to find ---Select--- ◆ of an unacceptably low profit.(d) Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. (Round your answer to three decimal places.)

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11 12 0.45 0.30 22 24 25 0.25 0.35 0.30 5 /unit /unit /unit 0.25 profit per unit for the base-case, worst-case, and best-case scenarios. e using most likely costs se Profit = $ Profit = $ Profit = $ e ta simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) he simulation approach to risk analysis preferable to generating a variety of what-if scenarios?

11 12 0.45 0.30 22 24 25 0.25 0.35 0.30 5 /unit /unit /unit 0.25 profit per unit for the base-case, worst-case, and best-case scenarios. e using most likely costs se Profit = $ Profit = $ Profit = $ e ta simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) he simulation approach to risk analysis preferable to generating a variety of what-if scenarios?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 8MC

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