Exhibit 10-1 a Company Is in the Planning Phase of Constructing a Constructing

question 16

Short Answer

Exhibit 10-1
A company is in the planning phase of constructing a new production facility.It wants to build a simulation model for the economics of the facility,and one key uncertain input is the construction cost.For each of the scenarios in the questions below,choose an "appropriate" distribution,together with its parameters,and explain your choice.
-If you add n lognormally distributed random numbers,the mean of the distribution for the sum is the sum of the individual means,and the variance of the distribution of the sum is the individual variances.This result is difficult to prove mathematically,but it is easy to demonstrate with simulation.To do so,run a simulation where you add three lognormally distributed random numbers,with means of 300,700 and 100,and standard deviations of 20,50,and 30,respectively.Your single output variable should be the sum of these three numbers.Verify with @RISK that the distribution of this output has a mean of 1,000 and standard deviation .

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Definitions:

Human Capital

The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value to an organization or society.

Production Possibilities

The various combinations of goods and services that can be produced within an economy given available resources and technology.

Circular-Flow Diagram

A visual model of the economy that illustrates the exchanges between households and firms through markets for products and resources.

Economy

A system of production, distribution, and consumption of goods and services in a particular geographic region.