Problem 2: Create a systems dynamic model in VENSIM that assumes that the rate o

Question

Problem 2: Create a systems dynamic model in VENSIM that assumes that the rate of change of ash near a volcano with respect to time is 4mm/day and the initial quantity is 3mm thick. Write the problem statement, givens, and assumptions of your model. Include the Vensim layout (screenshot) with a Figure Caption below describing the model, include the document files (cleaned up to remove blank lines).

a. Run the simulation using a step size of 0.5 days for 10 days and produce a graphical output, give the amount after t=1day (use the table from VENSIM) for both screenshot the outputs.

b. Repeat "a" above using a step size of 0.25days, and show output from the second simulation in a table, is it the same amount discuss why or why not?

Explanation / Answer

Adding details to accounting systems is generally easy; all that is required is the creation of additional categories. By contrast, adding details to a dynamic model requires more than just another stock or two and the corresponding rates of flow. For every flow in a simulation model it is necessary to formulate a policy that determines that flow. Adding one stock and flow may create many new feedback loops. Therefore, in developing dynamic financial models we do not want to delve into the detail required for a fully functional accounting system. The choice of how much detail to include must depend on model purpose. An important factor in determining the level of detail to include is the dynamic implications of introducing a finer structure. For example, suppose that when you sell a product you charge both for it and shipping. If you are setting up an accounting system you will want to set up two different accounts for these two revenue sources. For doing financial modeling, however, making the distinction would not be worthwhile. Every time a product is sold it is shipped, every time money is received for a product that has been sold the shipping charges are also received. Unless there are dramatic changes in the shipping mix, shipping charges can netted out or lumped into product sales without changing dynamics.

We are considering investment in a production facility for Thneeds, a made-to-order product. (Thneeds are an imaginary product from the Dr. Suess children’s story The Lorax.) You know the nominal capacity of the facility, its expected cost, how long it will take to build, the price of Thneeds, variable production costs and the interest rate that will be charged by the bank. The question you need to address is whether or not the investment is a good idea. At this point you will probably recognize that this is a very different problem than the ones we have been looking at. We are not trying to come up with a hypothesis about where behavior comes from but simply trying to track the consequences of some relatively simple assumptions. Building the financial portions of models often has this straightforward, almost mechanical, flavor. Constructing a model to answer this question does not present any large conceptual impediments. As a bonus, once the financial formulations are constructed we will see how easily they can be integrated into other models.

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