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Exercise 1: Sensitivity Analysis (45 points) While preparing for winter season, a small town is considering applying a Road Salt policy for their streets, they

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Exercise 1: Sensitivity Analysis (45 points) While preparing for winter season, a small town is considering applying a Road Salt policy for their streets, they estimate the initial investment needed for the policy in $25,000 (this amount already includes discounted operating costs for the period). The main impact of the policy is a decrease on trafc accidents (due to icy roads) and, given the size of the town, the city council is not interested in any other effect (such as decrease travel time) and won't consider them. The council has gathered the following information (assume all stochastic variables are independently distributed): 0 Number of trips per month (during winter): between 40,000 and 60,000 with a mean at 50,000 (uniform distribution). 0 Accident probability per trip (during winter, with an icy road): between 0.01% and 0.05% with a mean at 0.03% (uniform distribution, also note, 0.01% = 0.0001)

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