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Simulation and Decision Making
Pages 2 (502 words)
Every firm or company in the business industry has the sole objective of profit maximization unless it is a parastatal. In pursuit of these profits therefore, different critical decisions have to be made in order to ensure that uncertainties are avoided…
Every firm or company in the business industry has the sole objective of profit maximization unless it is a parastatal. In pursuit of these profits therefore, different critical decisions have to be made in order to ensure that uncertainties are avoided. The business also has to come up with plans and simulation models that direct it to achieve its objectives. These models play a major role of preventing instances such as project failure. Hence, a project can only be implemented once the trials in the models prove to be successful. Repeated trials are also important in ensuring success of the projects (GoldSim, 2012). A simulation played in the monopoly market would have no problem in the case of using pricing as a tool. This is because, since there are no competitors in the market, then the monopolist can choose to raise the prices up to the point where he makes supernormal profits. He or she however, still has to consider the possible effects of the high pricing on the firm due to cases of dead weight losses. In playing the simulation for a perfectly competitive firm, two factors have to be considered: the possibility of customers shifting to other buyers and the possibility of making massive losses due to low prices set. In order to completely optimize the profits therefore, the business may decide to just maintain the same prices but improve the quality instead (Smith & Smith, 2011). In playing the simulation, for a monopoly market structure, the firm may limit the amounts of funds directed to advertising and promotion since the firm has no competitors. ...
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