Determine the best production quantity

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"Only Fresh Donut Shop" sells donuts to its customers at $0.50 on the day the donuts are made. The demand for fresh donuts is Normally distributed with a mean of 10,000, with a standard deviation of 2,000. The leftover day-old donuts are sold to a secondary market, demand for which is triangularly distributed with parameters 1500, 1000, 700.

The price for a day-old donut is $0.30. It costs $0.25 to make a donut. Each time a customer tries to purchase a donut but one is not available, the shop incurs a goodwill loss. The goodwill loss for a unit of unmet donut demand is $0.15 on day one; the secondary market goodwill loss is $0.05 per donut.

Model the above problem with @Risk and determine the best production quantity (to the nearest 500-unit increment using 1000 iterations) to maximize expected profits. After you have completed the problem please attach and submit your ONE completed Excel workbook for the problem.

Reference no: EM133133673

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