Simulation Exercises

Q1 Harry’s Auto Shop Example: For example, let us consider the monthly demand for radial
tires at Harry’s Auto shop over the past 60 months The data is shown in the following table

Demand Frequency
300 3
320 6
340 12
360 18
380 15
400 6

Use random numbers to simulate the demand?

Q2 A few more information has been provided with respect to the previous question which are as
follows

• Average selling price per tire between $60 and $80, discrete uniform distribution

• Variable cost per tire varies each month, depending on material costs and other market
conditions

• Average profit margin per tire varies each month

• Estimated profit margin is between 20% and 30% per tire, continuous uniform
distribution

• Fixed cost of stocking and selling tires is $2,000 per month

The profit is calculated as: (Demand * Selling Price * Profit Margin) – Fixed Cost

For a continuous uniform distribution between values A & B where A denotes the lower limit
and B denotes the upper limit. The corresponding value for the variable is given by:

A + (B – A) * rand()

Q3 The weekly demand for tennis balls at the Racquet Club is normally distributed with a mean
of 35 cases and a standard deviation of 5 cases. The club gets a profit of $ 50 per case.

a) Simulate 52 weeks of demand and calculate the average weekly profit. Make all demand
values integers in your model.
b) What is the probability that weekly profit will be $ 2000 or more?

Q4 Edward Owen is responsible for the maintenance, rental and day-to-day operation of several
large apartment complexes on the upper-east side of the New York City. Owen is especially
concerned about the cost projections for replacing air conditioner (A/C) compressors. He would
like to simulate for number of A/C failures each month. Using data from similar apartment
buildings he manages in a New York City suburb; Clark establishes the probability of failures
during a month as follows

Number of A/C Failures Probability

0 0.10
1 0.17
2 0.21
3 0.28
4 0.16
5 0.07
6 0.01

a) Simulate Owen’s Monthly A/C failures for a period of three years. Compute the average
number of failures per month
b) Explain any difference between the simulated average failures and the expected value of
failures computed by using the probability distribution

Q5 Higgins Plumbing and Heating maintains a supply of eight water heaters in any given week.
Owner Jerry Higgins likes the idea of having this large supply on hand to meet customer demand
but also recognizes that it is expensive to do so. He examines water heater sales over
the past 50 weeks and notes the following data:

a. Set up a model to simulate Higgins’ weekly sales over a 2-year (104-week) period and
compute the following measures (based on a single replication):
 Average weekly sales
 Number of weeks with stockouts over a two-year period
 Replicate your model 200 times, using Data Table, to determine the (1) average weekly
sales and (2) probability that Higgins will have more than 20 weeks with stockouts over a
 2-year period.

b. Use the probability distribution for sales to determine the expected value of sales. Explain
any differences between this value and the average value computed using Data Table in
part (a).