A gasoline mini-mart orders 50 copies of a monthly magazine. Depending on the co

Question

A gasoline mini-mart orders 50 copies of a monthly magazine. Depending on the cover story, demand for the magazine varies. The gasoline mini-mart purchases the magazines for $1.50 and sells them for $4.00. Any magazines left over at the end of the month are donated to hospitals and other healthcare facilities.

The magazine publisher estimates that (if enough magazines were stocked) demand would be normally distributed with mean 50 and standard deviation 10.

Review and modify the attached model to address the situation described for the gasoline mini-mart,

Run a Monte Carlo simulation using a Excel Functions and Data Table. Run 1000-trials in your simulation.

a) Using the model provided (but not the simulation results), what is the estimated profit when the gasoline mini-mart stocks 50 magazines and demand is approximated by its mean of 50? (Select the closest value)

D. $125

b)How likely is the gasoline mini-mart to observe a profit less than $100? (Select the closest value)

D. 10%

c)What quantity of stocked magazines (purchase quantity) yields the highest average profit? HINT: Change the purchase quantity, recalculate tables and record average profit for each level of purchase quantity.

A. $0 B. $5 C. $50

D. $125

b)How likely is the gasoline mini-mart to observe a profit less than $100? (Select the closest value)

A. 55% B. 72% C. 28%

D. 10%

c)What quantity of stocked magazines (purchase quantity) yields the highest average profit? HINT: Change the purchase quantity, recalculate tables and record average profit for each level of purchase quantity.

A. 68 B. 35 C. 53 D. 40

Explanation / Answer

Say x is the demand which varies normally with mean = 50 & standard deviation = 10

Profit = x*(4-1.5) + (50-x)*0 = 2.5*x

For Demand = 50

Profit = 2.5*50 =125

a) Ans is D) $125

b) Probability that profit is less than $100 = P(2.5*x < 100) = P( x <100/2.5) = P(x<40 )

z value = (40-50)/10 = -1

P(Z<-1) = 0.1586 = 15.86 %

Ans is D) 10% which is closest

c) Ans is A) 68

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