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Simulation using Crystal Ball / OptQuest

This problem requires the use "Crystal Ball", the popular commercial spreadsheet add-in. For clarity, it is distributed by Decisioneering, Inc. This problem specifically requires that Excel and "Crystal Ball" (and OptQuest as applicable) be used - and not any other software choices. The link below directs you to a free 7-day trial:

Jim Jarrington owns a magazine stand at the Ovalstone business center in Roanoke, Virginia. He buys his magazines wholesale at $0.50 per magazine and sells them for $0.75. Jim has wondered about the optimal number of magazines to order each day. Based on history, he has found that demand (even though it is discrete) can be modeled by a normal distribution with a mean of 50 and standard deviation of 5. When he has more magazines than customers, he can recycle all the extra magazines the next day and receive $0.05 per magazine. On the other hand, if he has more customers than magazines, he loses some goodwill in addition to the lost profit on the potential sale of $0.25. Jim estimates the incremental lost goodwill costs five days' worth of business (that is, dissatisfied customers will go to a competitor the next week, but come back to the week after that).

Part A:
Create a spreadsheet model to determine the optimal number of magazines to order each day. Use 500 replications and round the demand values generated by the normal random number generator (RNG) to the closest integer value.

Part B:
Construct a 95% confidence interval for the expected payoff from the optimal decision.

Note: Please provide an explanation, so the student is able to understand the logic and application of the logic within the context of this problem and the software used.

Solution Summary

A simulation using Crystal Ball is investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.