Analysing a service contract using simulation

Assignment Help Managerial Accounting

Reference no: EM13180027

Suppose a simulation model has two random variables (eg. 'arrival time' and

'service time' in a queuing problem). What is wrong, if anything, with drawing a single random number on each trial and using this single number to determine the value for both random variables?

Analysing a service contract using simulation

The IDG Medical Fund is being considered as a group insurer for the employees of a large public company. If IDG wins the contract and insures the group, the daily frequency of claims is estimated as follows:

Number of Claims 0	Relative Frequency 0.05
1	0.06
2	0.08
3	0.10
4	0.33
5	0.14
6	0.11
7	0.07
8	0.04
9	0.02
	1.00

The probability distribution of the cost of each claim has been estimated using historical data and is as follows:

Average Cost per Claim $800	Probability 0.30
900	0.24
1000	0.22
1100	0.18
1200	0.06
	1.00

(a) What is the probability that there will be 4 claims or fewer per day?

(b) Using the following random numbers from left to right simulate a 5-day working week and calculate the expected weekly cash outflow in settlement of claims.

Random numbers: Random numbers: Number of Claims Cost per Claim

40, 71, 18, 77, 42 14, 56, 20, 76, 29

Reference no: EM13180027

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