Question
The annual demand for a prescription medicine is normally distributed with average of 100,000 and standard deviation of 12,000. Assume that demand during each of
The annual demand for a prescription medicine is normally distributed with average of 100,000 and standard deviation of 12,000. Assume that demand during each of the next 10 years is an independent random number from this distribution. The medicine manufacturer needs to determine how large a plant to build to maximize its expected profit over the next 10 years. If the company builds a plant that can produce a certain amount of this medicine per year, the building cost is $16 for each unit of medicine. The manufacturer produces only the amount demanded each year, and each unit of medicine sells for $4 with a variable production cost of $0.20. a. Among the capacity levels of 90,000, 95,000, 100,000, 105,000, and 110,000 units per year, which level maximizes expected profit? Use simulation to answer this question. b. Using the capacity from your answer to part a, Novartis can be 95% certain that actual profit for the 10-year period will be between which two values? please solve it in risk and be detailed
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started