Exam 10: Introduction to Simulation Modeling

If x is a random number between 0 and 1, then we can use x to simulate a variable that is uniformly distributed between 100 and 200 using the formula:

A correlation matrix must always be symmetric, so that the correlations above the diagonal are a mirror image of those below it.

Correlation between two random input variables may change the mean of an output, but it will not affect the variability and shape of an output distribution.

Exhibit 10-1A company is in the planning phase of constructing a new production facility. It wants to build a simulation model for the economics of the facility, and one key uncertain input is the construction cost. For each of the scenarios in the questions below, choose an "appropriate" distribution, together with its parameters, and explain your choice. -Refer to Exhibit 10-1. Management believes the facility construction time will be somewhere from 5 to 9 months. They believe the probabilities of the extremes (5 and 9 months) are both 10%, and the probabilities will vary linearly from those endpoints to a most likely value at 7 months.

RISKSIMTABLE is an @RISK function for running several simulations simultaneously, one for each setting of an input or decision variable.

Which of the following statements is true regarding the Normal distribution?

A correlation matrix must always have 1's along its diagonal (because a variable is always perfectly correlated with itself) and numbers between −1 and +1 elsewhere.

When the value of a decision variable has been optimized by running several simulations, attitude toward risk should no longer be relevant.

The three parameters required to specify a triangular distribution are the minimum, mean and maximum.

Exhibit 10-2A large apparel company wants to determine the profitability of one of its most popular products, a particular type of jacket. Demand is uncertain, due to economic conditions, competition, weather and other factors, and the following probability distributions have been estimated for each of the company's three regions: Estimate of Sales in Region 1 9,000 0.05 10,000 0.10 11,000 0.15 12,000 0.35 13,000 0.25 14,000 0.10 Estimate of Sales in Region 2 Smallest Value: 5000 units Most Likely Value: 7000 units Largest Value: 12000 units Estimate of Sales in Region 3 Minimum Value: $\quad 6000$ units Maximum Value: $\quad 9000$ units -Refer to Exhibit 10-2. Suppose the jacket sales price also varies, depending on the individual retailers and their pricing strategies. Assume that sales price is normally distributed with a mean of $65 per unit and a standard deviation of $10. How much revenue will the jacket line produce (ignore discounting)?