It is equally likely that annual unit sales for Widgetco’s widgets will be low or high. If sales are low (60,000), the company can sell the product for $10 per unit. If sales are high (100,000), a competitor will enter, and Widgetco can sell the product for only $8 per unit. The variable cost per unit has a 25% chance of being $6, a 50% chance of being $7.50, and a 25% chance of being

$9. Annual fixed costs are $30,000.

a. Use simulation to estimate Widgetco’s expected annual profit.

b. Find an interval that has a 90% chance of containing Widgetco’s annual profit.

c. Now suppose that annual unit sales, variable cost, and unit price are equal to their respective expected values; that is, there is no uncertainty. DetermineWidgetco’s annual profit for this scenario.

d. Can you conclude from the results in parts a and c that the expected profit from the simulation is equal to the profit from the scenario where each input assumes its expected value? Explain.