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This question was created from Chapter 2 notes https://www.coursehero.com/file/10496018/Chapter-2-notes/

How does the presence of uncertainty affect the usefulness of model. As this model looks unrealistic, what is the realistic approach

The Quality Sweaters Company sells hand knitted sweaters. The company is planning to
print a catalog of its products and undertake a direct mailing campaign. The cost of
printing the catalog is \$20,000 plus \$0.10 per catalog. The cost of mailing each catalog
including postage, order forms and buying names from a mail-order database is \$0.15. In
addition the company plans to include direct reply envelopes in its mailings and incurs
\$0.20 in extra costs for each direct mail envelope used by a respondent. The average size
of a customer order is \$40, and the company’s variable cost per order due primarily to
labor and material costs averages about 80% of the order's value — that is, \$32. The
company plans to mail 100,000 catalogs. It wants to develop a spreadsheet model to
answer the following questions: 1. How does a change in the response rate affect profit?
2. For what response rate does the company break even? 3. If the company estimates a response rate of 3%, should it proceed with the
mailing? 4. How does the presence of uncertainty affect the usefulness of the model?

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Subject: Math

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