Reference no: EM132191961

HEB., distributes a specialty non-stick pan for its customers. Variable cost is estimated to be either $18 or $22 per unit with probabilities of 0.45 and 0.55 from a supplier. The xed cost of shipment irrespective of the number of pans ordered is $10,875. The demand, which is dependent on the price is represented using the relationship Demand = X ?? 4p, where p is the unit selling price of the pan and X follows Normal distribution with a mean of 1000 units and standard deviation of 50 units. If there is any left-over pans at the end of the month, HEB has to sell the pans for $10 per unit (as a discount sale item). If there is any shortage of pans, HEB has estimated that the loss of goodwill cost is $3 per unit. Determine the optimal selling price p and the optimal order quantity Q for the pan for which the prot is maximized by developing a simulation model with 1 million trials.

Note that there are two decision variables. You can design a table with the rst row representing dierent selling price p and rst column representing dierent purchase quantity Q. The cells of the table should be lled with E[Prot] from the simulation and the optimal values can be found from the table.