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A company produces a product on a number of machines. Each machine generates between $200 and $400 of revenue per day according to the uniform probability distribution. When a machine breaks down, it must be repaired, and the repair time may take 1, 2, or 3 days to be completed according to the following probability distribution:
Repair time in Days
Probability
1
0.60
2
0.25
3
0.15
The company would like to know whether it should purchase a back-up machine at a cost of $6000. The management has decided that if the loss of revenue due to machine downtime was $5000 or more per year, then a back-up machine should be purchased.
In order to perform the comparison, the management decided to develop a simulation model for this situation. To develop this model, they first needed to know the time between breakdowns. According to their estimate, the time between breakdowns is between 0 and 8 weeks, with the probability increasing the longer the machine went without breaking down. Thus the probability distribution of breakdowns looked like the following:
Perform an annual simulation and determine the loss of revenue due to machine breakdown. Next, decide whether a back-up machine would be needed. Show all work and explain your results. Please note that points are deducted if clear explanations are not included with the solutions. Perform all work in Excel and Write all the explanations in a Word document. Submit both the Excel workbook and the Word document as attachments and via the assignment link located in the Week 3 content area.
The five models (steps) of the simulations in this assignment are as follow:
1. Run a simulation to simulate the time between break-downs. This is used to determine how many simulations are needed (Equivalently, how many break-downs there will be within a year).
2. Run a simulation to determine the number of days of repair for each breakdown.
3. Run a simulation to determine the revenue lost for each break-down.
4. Determine the total yearly revenue lost and perform a statistical analysis.
5. Write the description of the steps taken and the obtained results in the Word document and make a decision.
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