## Simulation

Problem 1: Furniture Promotion Sale
A large catalog merchandiser is planning to have a special furniture promotion a year from now. To do
this, the company must place its order for the furniture now. It plans to sign a contract with the
manufacturer for 2500 chairs at a cost of \$175 per unit. The promotion will last for eight weeks.
Marketing research suggests that the demand for the chairs during the first eight weeks has a uniform
distribution between 1000 and 3000 units, and the initial price during the first eight weeks is a triangular
random variable between \$200 and \$300 with a peak value at \$250. After the first eight weeks, all
remaining units will be offered for sale at half the initial price.

0 Perform an Excel spreadsheet simulation with 5000 replications;

0 Estimate the mean profit; compute a 90% confidence interval for the mean profit and a 90%

prediction interval for the profit;
0 Estimate the probability of having negative profit, and constmct a 90% confidence interval for
this probability.

Problem 2: Freddie’s Newsstand
Consider the following problem being faced by a newsboy named Freddie. One of the daily newspapers
that Freddie sells from his newsstand is the Financial Journal. A distributor brings the day’ 5 copies of the
Financial Journal to the newsstand early each morning. Any copies unsold at the end of the day are
returned to the distributor the next morning. However, to encourage ordering a large number of copies,
the distributor does give a small refund for unsold copies. Here are Freddie’s cost figures.
Freddie pays \$1.50 per copy delivered.
Freddie sells it at \$2.50 per copy.
Freddie’s refund is \$0.50 per unsold copy.