Simulation Class exercises

1. A small retailer has studied the weekly receipts and payments over the past 200 days and
has developed the following data distributions:
Daily receipts
Probability
Daily payments
Probability
(Rs.)
(Rs.)
3000
0.20
4000
0.30
5000
0.30
6000
0.40
7000
0.40
8000
0.20
12000
0.10
10000
0.10
Using Monte Carlo simulation, simulate the weekly pattern of receipts and payments for
the next 90 days of the next quarter, assuming a beginning bank balance of Rs. 8000.
What is the estimated balance at the end of the 90-day period? What is the highest daily
balance during the period? What is the average daily balance for the period? If we assume
that daily receipts and daily payments are independent, what can we say about the
probability distribution of the balance?
2. The management of a company is considering marketing of a new product. There are
three factors which are uncertain, viz. selling price, variable cost, and annual sales
volume. The product has a life of only one year. The management feels as follows about
the various possible levels of these three factors:
Selling
Probability Variable
Probability
Sales
Probability
price
cost
volume
(Rs/unit.)
(Rs/unit.)
(units)
4
0.3
2
0.1
3000
0.3
5
0.5
3
0.6
4000
0.4
6
0.2
4
0.3
6000
0.3
Apply Monte Carlo simulation to assess the average profit from the said product on the
basis of 10 trials, assuming a fixed cost of Rs. 5000.
3. A company trading in auto components wishes to determine the level of stock to be
carried for item X. demand for X is not certain and stock replenishment takes three days
from order date. Regarding demand, the following distribution is obtained based on past
data:
Demand (units/day)
1
2
3
4
5
Probability
0.1
0.2
0.3
0.3
0.1
Each time an order is placed, the company incurs an ordering cost of Rs. 20 per order.
The company also incurs a carrying cost of Rs. 2.50 per unit per day. The inventory
carrying cost is calculated on the basis of average stock. The manager wants to compare
the following two alternative inventory policies:
a) Order 12 units when the inventory at the end of the day plus order outstanding is
less than 12 units.
b) Order 10 units when the inventory at the end of the day plus order outstanding is
less than 10 units.
Currently the company has a stock of 17 units as opening stock. You are required to carry
out a simulation of 30 days and recommend which inventory policy the manager should
adopt. Repeat 100 times and summarise the results.