Exam 16: Simulation Models

Suppose this new drug will cost $3 million to develop.What is the chance that we could loose money on this project?

Estimate the fraction of all refrigerators that will have to be replaced.

(A)Estimate the mean and median value of your investment after 100 years. (B)Explain the large difference between the estimated mean and median.

Customer loyalty models are an example of which of the following types of simulation application?

The main issue in marketing and sales models is:

Consider a customer whose first car is GM.If profits are discounted at 10% annually,use simulation to estimate the value of this customer to GM over the customer's lifetime.

Simulate Amanda's portfolio over the next 30 years and determine how much she can expect to have in her account at the end of that period.At the beginning of each year,compute the beginning balance in Amanda's account.Note that this balance is either 0 (for year 1)or equal to the ending balance of the previous year.The contribution of $5,000 is then added to calculate the new balance.The market return for each year is given by a normal random variable with the parameters above (assume the market returns in each year are independent of the other years).The ending balance for the each year is then equal to the beginning balance,augmented by the contribution,and multiplied by (1+Market return).

In a bidding model,once we have the bidding strategy that maximizes the expected profit,we no longer should consider the bidders risk aversion.

A key input variable in many marketing models of customer loyalty is the:

Which of the following functions is not appropriate in cases where we run a single simulation?

In cash flow models,we are typically interested in investigating:

Consider a device that requires two batteries to function.If either of these batteries dies,the device will not work.Currently there are two brand new batteries in the device,and there are three extra brand new batteries.Each battery,once it is placed in the device,lasts a random amount of time that is triangularly distributed with parameters 15,18,and 25 (all expressed in hours).When any of the batteries in the device dies,it is immediately replaced by an extra (if an extra is still available).Use @RISK to simulate the time the device can last with the batteries currently available.

Next,assume that one of the bidders bids 20% below his or her estimated value,while the other two bidders follow the same strategy as in Question 74.Using 1000 iterations report the expected profit or loss to the conservative bidder.

A common distribution for modeling product lifetimes is the binomial distribution

If the warranty period were reduced to 2 years,how much per year in replacement costs would be saved?

What is the appropriate distribution for the probability of competitor entry?

A marketing simulation model can be used to determine the expected profit under uncertain customer loyalty,and then we can use an optimization model to determine the optimal amount to spend on increasing customer loyalty.

In a marketing and sales model,which of the following might be a good choice for a discrete distribution to model the random timing of sales?

Suppose that the forecasted price levels shown in the pro forma cash flow sheet are not deterministic,but rather are expected to fluctuate due to market forces.The prices are expected to be normally distributed in each year,with the means equal to the expected values shown in the pro forma,but with standard deviations of $5.2,$5.3,and $5.5 in years 1,2,and 3,respectively.Enter this pro forma in an Excel worksheet,with the appropriate @RISK functions for the random prices,and simulate 1,000 iterations.What is the expected NPV now? Would you recommend investing in this project? Explain.

The two random variables we typically simulate as inputs in bidding models are?