The sales at a company has a normal distribution with a mean of 8000 and a standard
Question:
The sales at a company has a normal distribution with a mean of 8000 and a standard deviation of 1000. The per unit profit is INR 200. Assume for simplicity that there are no fixed costs. A marketing firm now offers to run an advertising campaign. The marketing firms expects that the campaign will boost the sales and thus raise profits. It has built a simulation model to understand what the boost in profits will be. Note that the sample size (number of iterations in @Risk) is 1000. Figure 1 displays the results of the simulation and Table 1 describes the simulation summary statistics. However, the marketing firm will charge INR 3,50,000 to run the campaign (note that the cost of running the campaign is not factored in the simulation results).
Based on the simulation model, what is an estimate of the expected net profit (including the cost of the campaign?
Select one:
a. 31285
b. 1999519
c. 754128
d. 1649519
Based on the simulation model, what is an estimate of the probability that the company would make more money (again after factoring in the cost of the campaign) than the average profit it was making previously?
Select one:
a. 60%
b. 75%
c. 30%
d. 40%
Based on the simulation model and assuming the company is interested in profit maximization, should the company take up the marketing firm’s offer to run the advertising campaign? That is, does it make more money (in net) on average now than it was making before?
Select one:
a. Cannot conclude (at the 95% confidence level)
b. Yes (at the 95% confidence level)
c. No (at the 95% confidence level)
Introduction to Probability
ISBN: 978-0716771098
1st edition
Authors: Mark Daniel Ward, Ellen Gundlach