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Question - Mojave Manufacturing Company (MMC) is considering the introduction of a new product. Before deciding, they would like you to perform a risk analysis of the situation to assess whether the introduction of the new product is a good idea for the company. The (annual) fixed cost to begin production of the new product is $32,000. The variable cost for the product is uniformly distributed between $15 and $25 per unit. The product will sell for $50 per unit. Annual demand for the product is best described by a normal distribution with a mean of 1300 units and a standard deviation of 375 units. (Assume they produce exactly enough units to meet the annual demand.)
a. Develop an RISK simulation model and run it for 1,000 iterations.
b. According to your simulation results what is the expected annual profit?
c. According to the simulation results what is the probability of making a loss on this new product?
d. Would you recommend MMC introduce this new product? Defend your decision using the simulation output data.
e. How many iterations would you need to estimate expected annual profit for this new product within $50 for a 95 percent confidence level?
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