The owner of a newsstand believes that the demand is uniformly distributed for the newspaper between 10 and 100. The paper costs 70 cents, which sells for $1.25. For each unsold paper, the owner receives 30 cents credit.
Create a simulation model using Excel and run it for 100 days.
a) What is the average profit of the newsstand if the owner decides to buy 75 papers every day?
b) What is the average profit of the newsstand if the owner decides to buy 62 papers every day?
c) Comparing your results in (a) and (b), what do you observe? Using the optimal fill rate formula used earlier in class, find the optimal number of papers the owner needs to buy.