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Question
NARRBEGIN: SA_81_84In August 2009, a car dealer is trying to determine how many 2010 cars to order. Each car ordered in August 2009 costs $16,000. The demand for the dealer's 2010 models has the probability distribution shown in the table below. Each car sells for $21,000. If the demand for 2010 cars exceeds the number of cars ordered in August 2009, the dealer must reorder at a cost of $18,000 per car. Excess cars can be disposed of at $13,000 per car.
| Cars demanded | Probability |
| 25 | 0.25 |
| 30 | 0.20 |
| 35 | 0.15 |
| 40 | 0.20 |
| 45 | 0.20 |
(A) Use simulation to determine how many cars the dealer should order in August, 2009 to maximize his expected profit.
(B) For the optimal order quantity, find a 95% confidence interval for the expected profit.
(C) Why is it important to develop the confidence interval in (B)?
Answer
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