Determine how many cars of the next model year to order

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In August of the current year, a car dealer is trying to determine how many cars of the next model year to order. Each car ordered in August costs $20,000. The demand for the dealer’s next year models is normally distributed with mean of 300 and standard deviation of 80. Each car sells for $25,000. Excess cars can be disposed of at $17,000 per car. The car dealer wants to decide the optimal order quantity to maximize its expected profit.

Using @Risk, run the simulation 500 times for order quantity = 250, 275, 300, 325, and 350. For each of these order quantities, report the estimated mean and standard deviation of the profit (get this from the @Risk insert function). Which order quantity do you recommend and why? Note:

1. Solver is NOT used in this problem. You must use @RISK to generate output.

2. You are told demand follows a normal distribution. Make sure in the end that the realized demand is the nearest integer value.

Reference no: EM132262793

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