As stated in Example 12.6, the critical fractile analysis is useful for finding the optimal order quantity, but it doesn’t (at least by itself) show the probability distribution of net profit. Use...

As stated in Example 12.6, the critical fractile analysis is useful for finding the optimal order quantity, but it doesn’t (at least by itself) show the probability distribution of net profit. Use @RISK, as in Chapter 10, to explore this distribution. Actually, do it twice, once with the triangular demand distribution and its optimal order quantity and once with the normal demand distribution and its optimal order quantity. What can you say about the resulting distributions of net profit? What can you say about the resulting expected net profits? Could you use @RISK to confirm that these order quantities are indeed optimal? Explain how.

EXAMPLE 12.6 ORDERING CALENDARS AT WALTON BOOKSTORE

Recall that Walton Bookstore buys calendars for $7.50, sells them at the regular price of $10, and gets a refund of $2.50 for all calendars that cannot be sold. As in Example 10.3 of Chapter 10, Walton estimates that demand for the calendar has a triangular distribution with minimum, most likely, and maximum values equal to 100, 175, and 300, respectively. How many calendars should Walton order to maximize expected profit?

Objective To use critical fractile analysis to find the optimal order quantity.