Problem 12-15 (Algorithmic)
Strassel Investors buys real estate, develops it, and resells itfor a profit. A new property is available, and Bud Strassel, thepresident and owner of Strassel Investors, believes if he purchasesand develops this property it can then be sold for $170000. Thecurrent property owner has asked for bids and stated that theproperty will be sold for the highest bid in excess of $100000. Twocompetitors will be submitting bids for the property. Strassel doesnot know what the competitors will bid, but he assumes for planningpurposes that the amount bid by each competitor will be uniformlydistributed between $100000 and $150000.
- Develop a worksheet that can be used to simulate the bids madeby the two competitors. Strassel is considering a bid of $120000for the property. Using a simulation of 1000 trials, what is theestimate of the probability Strassel will be able to obtain theproperty using a bid of $120000? Round your answer to 1 decimalplace. Enter your answer as a percent.
%
- How much does Strassel need to bid to be assured of obtainingthe property?
$
What is the profit associated with this bid?
$
- Use the simulation model to compute the profit for each trialof the simulation run. With maximization of profit as Strassel’sobjective, use simulation to evaluate Strassel’s bid alternativesof $120000, $145000, or $150000. What is the recommended bid, andwhat is the expected profit?
A bid of $145000 results in the largest mean profit of$ .
