What is the average profit

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Reference no: EM132892221

The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $166 and $246, with a most likely value of $206 per unit. The product will sell for $300 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely.

Model the variable cost as a uniform random variable with a minimum of $166 and a maximum of $246. Model the product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of 2. Construct a simulation model to estimate the average profit and the probability that the project will result in a loss. (Use at least 1,000 trials.)

a. What is the average profit (in $)? (Round your answer to the nearest thousand.)

b. What is the probability the project will result in a loss?

Reference no: EM132892221

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