Young entrepreneur Fan Bingbing has launched a business venture in which she uses stories submitted by university students as the basis for comics in a monthly anime-style magazine. Based on market research, Fan estimates that average monthly demand will be 500 copies. She has decided to model monthly demand as the maximum of 0 and a normal random variable with a mean of 500 and a standard deviation of 300.
Fan must pay a publishing company $3.75 for each copy of the comic printed. She then sells the magazine for $5 each. Rather than having a storefront, Fan sells the magazines through a group of student vendors who sell the comics out of their backpacks while on campus. Fan pays a student vendor $0.35 for each magazine he/she sells. As Fan distributes a new issue each month, she only sells each issue for a month. However, the publishing company has agreed to buy back from Fan any unsold copies at the end of each month for $2.25. Create a simulation model with 1000 trials.
A. What is the estimate of the average profit if Fan sets the order quantity to 1,200? What is the 95% confidence interval on this estimate of average profit?
B. What is the estimate of the average profit if Fan sets the order quantity to 1,000? What is the 95% confidence interval on this estimate of average profit?
C. Which order quantity should Fan choose based on the average profit?
