Simulation

Problem-1:
The management of ABC Company is considering the question of marketing a new product.
The fixed cost required in the project is Rs.4000. Three factors are uncertain, viz. the selling
price, variable cost and the annual sales volume. The product has a life of only one year. The
management has the data on these three factors as under:
Selling Probability Variable Probability Sales volume Probability
price (Rs.) cost (Rs.) (Units)
3 0.2 1 0.3 2000 0.3
4 0.5 2 0.6 3000 0.3
5 0.3 3 0.1 4000 0.4
Consider the following sequence of thirty random numbers:
81, 32, 60, 04, 46, 31, 67, 25, 24, 10, 40, 02, 39, 68, 08, 59, 66, 90, 12, 64, 79, 31, 86, 68,
82, 89, 25, 11, 98, 16. Using the sequence, simulate the average profit for the above project
on the basis of ten trials.

Solution:
We shall have to simulate the selling price, the variable cost and the sales volume. The selling
price minus the variable cost will give the contribution per unit. The total contribution for the
sales volume can be worked out. Profit will be equal to the total contribution less fixed costs
of Rs.4000. Let us first assign Random Number blocks.

Selling price Probability Cumulative Probability Random number block

3 0.2 0.2 0019
4 0.5 0.7 2069
5 0.3 1.0 7099

Variable cost Probability Cumulative Probability Random number block

1 0.3 0.3 0029
2 0.6 0.9 3089
3 0.1 1.0 9099

Sales volume Probability Cumulative Probability Random number block

2000 0.3 0.3 0029
3000 0.3 0.6 3059
4000 0.4 1.0 6099
Now let us run the simulation.
 S.No R.No Selling price R.No Variable cost R.No. Sales volume Profit
1 81 5 32 2 60 4000 8000
2 04 3 46 2 31 3000 1000
3 67 4 25 1 24 2000 2000
4 10 3 40 2 02 2000 2000
5 39 4 68 2 08 2000 0
6 59 4 66 2 90 4000 4000
7 12 3 64 2 79 4000 0
8 31 4 86 2 68 4000 4000
9 82 5 89 2 25 2000 2000
10 11 3 98 3 16 2000 4000
Total profit 13,000
Average profit =Rs. 13,00.
Problem-2:
A bakery keeps stock of a popular brand of cake. Previous experience shows the daily
demand pattern for the item with associated probabilities, as given below

Use the following sequence of random numbers to simulate the demand for next 10 days.
Random numbers: 40, 19, 87, 83, 73, 84, 29, 09, 02, 20

Solution:
Problem-3:
An ice-cream parlor's record of previous month’s sale of a particular variety of ice cream as follows

Random numbers: 17, 46, 85, 09, 50, 58, 04, 77, 69 and 74
Simulate the demand for first 10 days of the month

Solution:
Problem-4:
A dealer sells a particular model of washing machine for which the probability distribution of daily
demand is as given in Table.

Find the average demand of washing machines per day.

Random Numbers: 68, 47, 92, 76, 86, 46, 16, 28, 35, 54.

Solution:

Average demand =28/10 =2.8 washing machines per day.

Problem-5:
A farmer has 10 acres of agricultural land and is cultivating tomatoes on the entire land. Due
to fluctuation in water availability, the yield per acre differs. The probability distribution
yields are given below:
(a). The farmer is interested to know the yield for the next 12 months if the same water
availability exists. Simulate the average yield using the following random numbers 50, 28,
68, 36, 90, 62, 27, 50, 18, 36, 61,21 given in Table below.

(b). Due to fluctuating market price, the price per kg of tomatoes varies from Rs. 5.00 to Rs.
10.00 per kg. The probability of price variations is given in the Table below. Simulate the
price for next 12 months to determine the revenue per acre. Also find the average revenue per
acre. Use the following random numbers 53, 74, 05, 71, 06, 49, 11, 13, 62, 69, 85 and 69.

Solution:
Average revenue per acre = 21330 / 12  Rs. 1777.50
Problem-6: An automobile production line turns out about 100 cars per day, but deviations
occur owing to many causes. The production is more accurately described by the probability
distribution given below:
Production / day Probability
95 0.03
96 0.05
97 0.07
98 0.10
99 0.15
100 0.20
101 0.15
102 0.10
103 0.07
104 0.05
105 0.03
Finished cars are transported across the bay, at the end of each day, by ferry. If the ferry has
space only for 101 cars, what will be the average number of cars waiting to be shipped, and
what will be the average number of empty spaces on the boat? Use Monte Carlo simulation
and simulate for 20 days. Random numbers are given below:
07 21 12 80 08 03 32 65 43 75 23 37 16 28 30 18 25 34 19 21

Solution:
We shall have to simulate the number of cars produced daily. Let us first assign random
number blocks to the production distribution:
Production per day Probability Cumulative Probability Random number block
95 0.03 0.03 0002
96 0.05 0.08 0307
97 0.07 0.15 0814
98 0.10 0.25 1524
99 0.15 0.40 2539
100 0.20 0.60 4059
101 0.15 0.75 6074
102 0.10 0.85 7584
103 0.07 0.92 8591
104 0.05 0.97 9296
105 0.03 1.00 9799
Now let us run the simulation.

Day Random number Production Cars waiting for shipment Empty space on boat
1 07 96  5
2 21 98  3
3 12 97  4
4 80 102 1 
5 08 97  4
 6 03 96  5
7 32 99  2
8 65 101  
9 43 100  1
10 75 102 1 
11 23 98  3
12 37 99  2
13 16 98  3
14 28 99  2
15 30 99  2
16 18 98  3
17 25 99  2
18 34 99  2
19 19 98  3
20 21 98  3
Total 2 49

At an average 2/20 or 0.1 car is waiting for shipment and 49/20 or 2.45 empty spaces are
there on the ferry.