IQDM Quiz 1

Introduction to Quantitative
Decision Making
Linear Programming.
U.K. Bhattacharya
Linear Programming
In 1947, George B. Dantzig and his associates while working in the U.S. Department of Air
force, observed that a large number of military programming and planning problems could be
formulated as maximizing/minimizing a linear form of profit/ cost function whose variables
were restricted to values satisfying a system of linear constraints (a set of linear equations / or
in-equations).
Its name means that planning (programming)is being done with the mathematical model
where all the functions in the model are linear functions.
General form of LPP
In order to find the values of the n decision variables x , x ,..., x so as to maximize or
minimize the objective function 1 2 n
Z  c x  c x  ...  c x
11 2 2 n n
Subject to the constraints,
9/11/2024 Developed by Prof. U.K. 2

Bhattacharya, IIM Indore.
a x  a x  ...  a x ()b
11 1 12 2 1n n 1
a x  a x  ...  a x ()b
21 1 22 2 2n n 2
...
a x  a x  ...  a x ()b
m1 1 m 2 2 mn n m
And the non-negativity restrictions x  0, x  0,..., x  0.

1 2 n

Applications of Linear Programming
Linear programming involve determining the best mix of activities, where
the decision variables represents the levels of the respective activities.
 In financial planning (portfolio selection, capital budgeting, financial
mix strategy)
Marketing analysis (market research in the segment of the market,
advertising planning etc).
Production planning (product mix problem or blending

problem)
In addition to manufacturing, these kinds of production
planning applications also arise in agricultural planning,
health care management, the planning of military operations,
policy development for the natural resources, etc.
Basic steps of the mathematical formulation
of linear programming problem
Step-1: Write down the decision variable of the problem.

Step-2: Formulate the objective function to be optimized as a linear function of
the decision variables.
Step-3: Formulate the other conditions of the problem such as resource
limitations, market constraints, interrelation between variables etc. as linear
equations or in equations in terms of the decision variables.
Step-4: Add the non-negative constraints.

Linear Programming
Q1. The Summins Garment Company manufactures two

garments, product 1 and product 2 for Neelcent Discount stores.
Neelcent will accept all the production supplied by Summins. The
production process includes cutting, sewing and packaging.
Summins employs 25 workers in the cutting department, 35 in
the sewing department and 5 in the packaging department. The
factory works one 8 hour shift, 5 days a week . The following
table gives the time requirements and profits per unit for the two
garments
Developed by Prof. U.K.

9/11/2024 Bhattacharya, IIM Indore. 6
____________________________________________________
Minutes per unit
__________________________
Garment Cutting Sewing Packaging Unit Profit($)
_____________________________________________________
Product 1 20 70 12 8.00
Product 2 60 60 4 12.00
_____________________________________________________
(a) Determine the optimal weekly production schedule for Summins
(b) Determine the worth per unit of cutting, sewing and packaging.
© Suppose that overtime can be used in both the cutting and the sewing departments,
What is the maximum hourly rate Summins should pay for overtime?

Q2
• Modern equipment can advertise its products on local radio or
television (TV). The advertisement budget is limited to $10,000 a
month. Each minute of radio advertisement costs $15 and each minute
of TV commercials costs $300. Modern Equipment likes to use radio
advertisement at least twice as much as TV. In the meantime, it is not
practical to use more than 400 minutes of radio advertisement a month.
Past experience shows that TV advertisement is estimated to be 25
times more effective than that of radio.
• a)Determine the optimum allocation of the budget to radio and TV
advertisements.
• b)Determine the worth per unit of increasing the monthly limit on
radio

advertisement.
c)If the monthly budget is increased to $15,000, use the unit worth measure to
determine the resulting optimum measure of advertisement effectiveness.

Q3. The Bank of West Asian is allocating a maximum of $200,000 for
personal and car loans. The bank charges 14% for personal loans and 12%
for car loans. Both types of loans are repaid at the end of a 1-year period.
Experience shows that about 3% of personal loans and 2% of car loans are
never repaid, both as principal and interest. The bank usually allocates at
least twice as much to car loans as to personal loans.
a)Determine the optimal allocation of funds between the two loans
and the net rate of return on all the loans.
b)Determine the optimality range for the ratio of car to personal
interest rates that will keep the solution in (a) unchanged.
c)Suppose that the percentages of unrepaid personal and car loans are
changed to 4% and 3% respectively; use the result in (b) to show if
this change will affect the optimum solution in (a).

Exercise Q4
Levince grocery store sells two types of soft drinks : the
brand name A1 cola and the cheaper store brand Levince
Cola. The margin of profit for A1 is about 5 cents per can
and that of Levince is 7 cents per can. On the average, the
store sells no more than 500 cans of both colas a day.
Although A1 is a recognized brand name, customers tend to
buy more Levince because it is considerably cheaper. It is
estimated that at least 100 cans of A1 are sold daily and that
number of Levince cola outsells A1 by a margin of at least
2:1.
a)How many cans per day of each brand should the store
carry to maximize profit ?
b)Determine the ratio of the profits per can of A1 and
Levince that will keep the optimum solution in (a)
unchanged.
Graphical Solution:
Determination of the solution space that defines all feasible solutions of the model.
Determination of the optimum solution from among all feasible points in the solution
space.
Step-1:The non-negativity constraints will restrict the solution space area to the first
quadrant.
Step-2: Consider the inequality constraints as equations. Plot the equations on the graph
Step3 : Show the feasible region on the graph.
Step4: Choose the convenient value of Z (say=0) and plot the objective function line.
Step 5-Find out the direction of the OF in which it maximizes and take the extreme point at
which the OF is maximum and further increase of Z value will lead to infeasible solution
.
Similarly for minimization case consider the decreasing direction of Z and find out the
extreme point at which objective function is minimum.
Step-6: Read the co-ordinates of the extreme points selected at step5 and find the MAX or
MIN9/11/2024
value of Z. Developed by Prof. U.K. 13
Case: Personnel Scheduling Problem.
A private hospital authority needs to know how many nurses are
actually required in each shift to give the patients a satisfactory level
of service. Management recognizes the need for the cost control
while also consistently providing a satisfactory level of service to the
patients. Therefore a study is needed to schedule the nurses to
provide satisfactory service within the cheapest personnel cost.

Case: Media Planning.
Media planning involves selecting appropriate media for carrying the
advertiser’s messages to the target markets. The problem is to select the
number of advertisements in the proper media such that within
minimum cost it should reach to the maximum number of target
audiences. The maximum limit of the advertisement budget is fixed,
the size of the advertisement is also fixed. The relative importance of
the reader’s choice for choosing the media are given.

Capital Budgeting Problem
The ICE Cold Refrigerator Company is considering investing in

several projects that have varying capital requirements over the
next four years. Faced with limited capital each year, management
would like to select the most profitable projects for capital
expenditure. The estimated net present value for each projects, the
capital requirements, and the available capital over the four-year
period are given below.

Project net present value, capital requirements and available capital.
________________________________________________________
Project
Plant Warehouse New New
Expansion Expansion Machinery Product Research
Estimated $90,000 $40,000 $10,000 $37,000 Capital

Net present available
Value
Year1 Capital $15,000 $10,000 $10,000 $15,000 $40,000

Year2 Capital $20,000 $15,000 $10,000 $50,000
Year3 Capital $20,000 $20,000 $10,000 $40,000
Year4 Capital $15,000 $5,000 $4,000 $10,000 $35,000
Maximize the net present value over all projects accepted.

Introduction of Quantitative
Decision Making
Graphical Sensitivity
Analysis
Graphical Sensitivity Analysis
Sensitivity analysis gives the dynamic dimension that
investigates the impact of making changes in the model
parameter on the optimal solution.
The procedure is referred as sensitivity analysis because it
studies the sensitivity of the optimal solution to changes made in
the model.

2 Bhattacharya , IIM Indore
Graphical Sensitivity Analysis
Here we shall investigate two cases of sensitivity analysis.
Analysis is based
on the graphical LP solution.
 Changes in the objective coefficient.
Changes in the right hand side of the constraints.
 Although the presentation is elementary and limited in scope, it does provide the
fundamental insight into the development of sensitivity analysis.

Changes in the objective function coefficients
The general objective function in a two variable LP problem can be written as Maximize or
minimize Z= c x  c x
11 2 2
Changes in the coefficients c1 and c2 will change the slope of Z and possibly the corner
point. However, there is a range of variation for both c1 and c2 that will keep the current
optimum solution unchanged.
If we change the objective function to Z=
c x c x , then the solution at C will
1 1 2 2
remain optimal as long as the slope of Z lies within the slopes of the two lines intersecting
at C.
4The general relationship Bhattacharya , IIM Indore
c c
6 2 1 1 7
 3 or  
7 c 3 c 6
1 2
By using the above conditions we can determine the optimal range for one of the
coefficients.
48
4  c  14 and  c  24
1 7 2
Change in availability of resources
Here we investigate the sensitivity of the optimum solution to making changes in the amount of
available resources.
In LP constraints directly or indirectly represent the usage of limited resources . In this the r.h.s.
can be thought of representing limits on the availability of resources.

Feasibility range for constraint 1
For constraint 1 the point C move along the line E(0,1400) to B(9600/11 , 4200/11). So the
feasibility range for the first constraint is 40363.6 to 84000.
This result shows that M1 can be decreased by as much as 19636.4 minutes or increased by
as much as 24000 while guaranteeing that the optimal solution point will be given by the
intersection of the lines associated with M1 and M2.
Feasibility range for constraint 2
Constraint 2 moves from D(0,1000) to F(3000/4 , 3000/4) that is intersection point

between 1 and 3. So the feasibility range for the second constraint is by
Developed 60000 to
Prof. U.K.
697500. Bhattacharya , IIM Indore
Similarly the associated general solution in term of M2(the second resource
constraint) is as follows
Unit worth of a resource
The LP model can be thought of as an input-output model in which the limited resources
represent the input and the value of the objective function summarizes the output.
Definition: It is defined as the rate of change in the optimum objective value that results from
making changes in the available amount of resource.

If y represent the worth per unit of resource I, the associated formula for
i
computing this measure is
Change in value of Z corresponding to the feasible range of resource i
y 
i feasible range of resource i
Change in O.F. from E to B

Thus y  Change in M1 from E to B
1
5238
  0.12  60  $7.20
43636.7
Change in O.F. from D to F
y 
2 Change in resource 2 constraint from D to F
 $4.80
Since the third resource constraint is not binding at the optimal

solution so the corresponding dual variable is equal to zero.
Part (b) Thus the worth per hour of cutting, sewing and packaging is $7.20, $4.80 and 0
Part © 60 minute increase in cutting time will give a profit of $7.20. Thus in the cutting
department the Summins should pay a maximum of $7.2 per hour. Similarly in sewing
An LP variable is regarded as an economic activity that consumes (input) resources for the purpose of
producing (output) profit. We have
 Cost of consumed 
 Reduced cost per     Profit per unit 
    resources per unit of  
 Uuit of activity j     of activity j 
 activity j 

If the activity’s reduced cost per unit is positive, then the cost of the consumed resources per unit is
higher than its profit per unit, and the activity should not be undertaken. This means that the value of its
associated variable in the optimum solution must be zero.

Merton Truck Company

Bhattacharya, IIM indore.
At Merton’s monthly planning meeting in July 1988,
the company’s president expressed dissatisfaction
with Merton’s financial performance during the six-
month period January-June 1988.
The Merton Truck Company manufactured two

specialized models of trucks, Model 101 and Model
102, in a single plant in Wheeling Michigan.
Manufacturing operations were grouped into four
departments: engine assembly, metal stamping,
Model 101 assembly, and Model 102 assembly.

Data on the machine-hour requirements for each truck
model in each department and the monthly machine-
hour availability in the departments are given in Table
A. The company could sell as many trucks as it could
produce.
Merton’s production schedule for the first six months of

1988 had resulted in a monthly output of 1,000 Model
101 trucks and 1,500 Model 102 trucks. At this level of
production, Model 102 assembly and engine assembly
were operating at capacity. However, metal stamping
and Model 101 assembly were operating at only 83.3%
and 40% of capacity, respectively. Table B gives
standard costs at this level of production; Table C gives
details on overhead costs.
Table A Machine-hours: Requirements and
Availability
Machine-hours
Required per Truck
Total Machine-hours
Model 101 Model 102
Department Available per Month
Engine assembly 1.0 2.0 4,000
Metal stamping 2.0 2.0 6,000
Model 101 assembly 2.0 --- 5,000
Model 102 assembly --- 3.0 4,500

Table B Standard Product Costs
Model 101 Model 102
Direct materials $24,000 $20,000
Direct labor
Engine assembly 1,200 2,400
Metal stamping 800 600
Final assembly 2,000 1,500
4,000 4,500
Overhaeada
Engine assembly 2,525 4,850
Metal stamping 3,480 3,080
Final assembly 6,200 3,500
12,205 11,430
Total $40,205 $35,930
a. See Table C.
Table C Overhead Budget for 1988
Total Fixed Variable

Overhead Overhead Overhead/Unit
Department
per Montha per Monthb Model Model
($ millions) ($ millions) 101 102
Engine assembly 9.80 1.70 $2,100 $4,000

Metal stamping 8.10 2.70 2,400 2,000
Model 101 assembly 6.20 2.70 3,500 ---
Model 102 assembly 5.25 1.50 --------- 2,500
29.35 8.60 $8,000 $8,500
a. Based on a monthly production rate of 1,000 Model 101 trucks and 1,500 Model 102 trucks.
b. Fixed overhead was distributed to the two truck models in proportion to degree of capacity utilization.

Problems
1.
a. Find the best product mix for Merton.
b. What would be the best product mix if engine assembly
capacity were raised by one unit, from 4,000 to 4,001
machine-hours? What is the extra unit of capacity worth?
c. Assume that a second additional unit of engine assembly
capacity is worth the same as the first. Verify that if the
capacity were increased to 4,100 machine-hours, then the
increase in contribution would be 100 times that in part (b).
d. How many units of engine assembly capacity can be added
before there is a change in the value of an additional unit of
capacity?

2. Merton’s production manager suggests purchasing Model
101 or Model 102 engines from an outside supplier in order
to relieve the capacity problem in the engine assembly
department. If Merton decides to pursue this alternative, it
will be effectively “renting” capacity: furnishing the
necessary materials and engine components, and
reimbursing the outside supplier for labor and overhead.
Should the company adopt this alternative? If so, what is
the maximum rent it should be willing to pay for a machine-
hour of engine assembly capacity? What is the maximum
number of machine-hours it should rent?

3. Merton is considering the introduction of a new truck, to be
called Model 103. Each Model 103 truck would give a
contribution of $2,000. The total engine assembly capacity
would be sufficient to produce 5,000 Model 103s per month,
and the total metal stamping capacity would be sufficient to
produce 4,000 Model 103s, The new truck would be
assembled in the model 101 assembly department, each
Model 103 truck requiring only half as much time as a
Model 101 truck.
a. Should Merton produce Model 103 trucks?
b. How high would the contribution on each Model

103 truck have to be before it became worthwhile
to produce the new model?

4. Engines can be assembled on overtime in the engine
assembly department. Suppose production efficiencies do
not change and 2,000 machine-hours of engine assembly
overtime capacity are available. Direct labor costs are
higher by 50% for overtime production. While variable
overhead would remain the same, monthly fixed overhead
in the engine assembly department would increase by
$0.75 million. Should Merton assemble engines on
overtime?
5. Merton’s president, in arguing that maximizing short-run

contribution was not necessarily good for the company in
the long run, wanted to produce as many Model 101s as
possible. After some discussion, it was agreed to maximize
the monthly contribution as long as the number of Model
101 trucks produced was at least three times the number of
Model 102s. What is the
10/7/2024 resulting
Developed by Prof.“optimal”
U.K. product mix? 10
APPLICATIONS
PROF. U.K. BHATTACHARYA
B&B ALGORITHM (For Computer Solution)
Assuming a maximization problem, set an initial lower bound z=-  on
the optimum objective value of ILP. Set I=0.
Step-1: (Fathoming/bounding). Select LP , the next sub problem to be

i
examined. Select LP i and attempt to fathom it using one of the three
conditions:
(a) The optimum z value of LP i cannot yield a better objective value
than the current lower bound.
(b) LP i yields a better feasible integer solution than the current lower
bound.
(c) LP i has no feasible solution.
10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 2

B&B ALGORITHM
Two cases will arise
(a) If LP i is fathomed and better solution is found, update the lower
bound, if all sub problems have been fathomed, stop, the optimum
ILP is associated with the current finite lower bound. If no finite
lower bound exists the problem has no feasible solution. Else set
I=I+1, and repeat step-1.
(b) If LP i is not fathomed, go to step 2 for branching.
Step-2 (Branching) Select one of the integer variables x j , whose

*
optimum value x j in the Lpi solution is not integer. Eliminate the
region
B&B ALGORITHM
x   x  x   1
*
j j
*
j
By creating two LP subproblems that corresponds to
   
x j  x *j and x j  x *j  1
Set I=I+1 and go to step –1.

APPLICATION
• The Telfa corporation manufactures tables and chairs. A table
requires 1 hr of labor and 10 square board feet of wood, and a chair
requires 1 hour of labor and 6 square board feet of wood. Currently
5 hours of labor and 45 square board feet of wood are available.
Each table contributes $5 to profit and each chair contribute $4 to
profit. Formulate and solve the IP to maximize the Telfa’s profit.
•

Formulation:
• Maximize Z=
• Subject to,
• +
• 10 +6
•

CARGO LOADING MODEL:
Five item are to be loaded in a vessel. The weight w, and volume v,
together with the value r, for item I are tabulated subsequently.
Item i Unit Weight Unit Volume Unit Worth

W, (tons) v, (yd3) r, (1000$)
1 5 1 4
2 8 8 7
3 3 6 6
4 2 5 5
5 7 4 4
The maximum allowable cargo weight and volume are 112 tons and 109
yd3 respectively. Formulate the ILP model and find the most valuable
cargo.
SET COVERING PROBLEM:
Exercise : Five daily newspapers are published in a certain country.
Each paper covering some of the nine regions of the country
as shown in the following table.
Newspaper Region Cost of the

Covered advertisement
1 1,2,4 3
2 2,3,6 4
3 4,5,6 3
4 5,7,8 7
5 6,8,9 5
Find the minimum total cost selection of newspapers such that the
advertisement covers the whole country.
Solution:
The optimal solution is
y1  1, y2  1, y3  1, y4  1, y5  1
with Z =19
Thus the advertisement is to be given in newspapers 1,2,4 and 5 to cover

all over India with a minimum cost of 19 Units.

Implicit Enumeration
 Implicit Enumeration is a technique for solving 0-1 programming problem.
Implicit Enumeration builds from partial solutions.
The partial solution simply means the assignment of zero or one to a
subset of the decision variables.
Given a partial assignment , an analysis of the problem can lead to
elimination of certain subproblems.
 As in the Branch & Bound method, use bound to eliminate nonpromising
subproblems.
The feasible subproblem with better bound is considered as optimal
solution.
Diagram
0 1
1
2 3
0 1
Infeasible
4 5
Infeasible
0 1
6 7
(1,1,0,0,0) (1,1,1,0,0)
(1,1,0,0,1) (1,1,1,0,1)
(1,1,0,1,0) (1,1,1,1,0)
(1,1,0,1,1) (1,1,1,1,1)

RESOURCE ALLOCATION PROBLEM:
Capital Budgeting Problem
The ICE Cold Refrigerator Company is considering investing in several

projects that have varying capital requirements over the next four years.
Faced with limited capital each year, management would like to select the
most profitable projects for capital expenditure. The estimated net
present value for each projects, the capital requirements, and the
available capital over the four-year period are given below.
Project net present value, capital requirements and available capital.
Project
Plant Warehouse New New

Expansion Expansion Machinery Product
Research
Estimated $90,000 $40,000 $10,000 $37,000 Capital
Net present available
Value
Year1 Capital: $15,000 $10,000 $10,000 $15,000 $40,000

Year2 Capital: $20,000 $15,000 $10,000 $50,000
Year3 Capital: $20,000 $20,000 $10,000 $40,000
Year4 Capital: $15,000 $5,000 $4,000 $10,000 $35,000
SET COVERING PROBLEM
Washington Country includes six towns that need emergency ambulance
service. Because of the proximity of some of the towns, a single station
may serve more than one community. The stipulation is that the station
must be within 15 minutes of driving time from the towns it serves. The
table below gives the driving times in minutes among the six towns.
1 2 3 4 5 6
1 0 23 14 18 10 32
2 23 0 24 13 22 11
3 14 24 0 60 19 20
4 18 13 60 0 55 17
5 10 22 19 55 0 12
6 32 11 20 17 12 0
Formulate an ILP whose solution will produce the smallest number of

stations and their locations.
Solution:
• Conclusion : The ambulance locations will be located in
town 1 and town 2. This two locations will ensure that there
will be atleast one ambulance center with in 15 minutes of
driving time from each towns.

Traveling Salesman Problem

IQDM Quiz 1

Uploaded by

Copyright:

Available Formats

IQDM Quiz 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IQDM Quiz 1

Uploaded by

Copyright:

Available Formats

Introduction to Quantitative

9/11/2024 Developed by Prof. U.K. 2

And the non-negativity restrictions x  0, x  0,..., x  0.

9/11/2024 Developed by Prof. U.K. 3

Production planning (product mix problem or blending

Step-1: Write down the decision variable of the problem.

9/11/2024 Developed by Prof. U.K. 5

Q1. The Summins Garment Company manufactures two

Developed by Prof. U.K.

9/11/2024 Developed by Prof. U.K. 7

9/11/2024 Developed by Prof. U.K. 9

9/11/2024 Developed by Prof. U.K. 10

9/11/2024 Developed by Prof. U.K. 11

9/11/2024 Developed by Prof. U.K. 15

9/11/2024 Developed by Prof. U.K. 16

The ICE Cold Refrigerator Company is considering investing in

9/11/2024 Developed by Prof. U.K. 17

Estimated $90,000 $40,000 $10,000 $37,000 Capital

Year1 Capital $15,000 $10,000 $10,000 $15,000 $40,000

Maximize the net present value over all projects accepted.

9/11/2024 Developed by Prof. U.K. 18

Developed by Prof. U.K.

Here we shall investigate two cases of sensitivity analysis.

 Changes in the objective coefficient.

Changes in the right hand side of the constraints.

Developed by Prof. U.K.

Change in availability of resources

Developed by Prof. U.K.

Feasibility range for constraint 2

Constraint 2 moves from D(0,1000) to F(3000/4 , 3000/4) that is intersection point

Unit worth of a resource

Developed by Prof. U.K.

Change in O.F. from E to B

Since the third resource constraint is not binding at the optimal

Developed by Prof. U.K.

Developed by Prof. U.K.

10/7/2024 Developed by Prof. U.K. 1

The Merton Truck Company manufactured two

10/7/2024 Developed by Prof. U.K. 2

Merton’s production schedule for the first six months of

10/7/2024 Developed by Prof. U.K. 4

Total Fixed Variable

Engine assembly 9.80 1.70 $2,100 $4,000

10/7/2024 Developed by Prof. U.K. 6

10/7/2024 Developed by Prof. U.K. 7

10/7/2024 Developed by Prof. U.K. 8

b. How high would the contribution on each Model

10/7/2024 Developed by Prof. U.K. 9

5. Merton’s president, in arguing that maximizing short-run

Step-1: (Fathoming/bounding). Select LP , the next sub problem to be

10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 2

Step-2 (Branching) Select one of the integer variables x j , whose

By creating two LP subproblems that corresponds to

10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 4

10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 5

10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 6

Item i Unit Weight Unit Volume Unit Worth

Newspaper Region Cost of the

Thus the advertisement is to be given in newspapers 1,2,4 and 5 to cover

10/21/2024 Developed by Prof. U.K. Bhattacharya, IIM Indore. 21