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The solution obtained by simplex or graphical method of LP is based on deterministic assumptions i.e. we assume complete certainty in the data and the relationships of a problem namely prices are fixed, resources known, time needed to produce a unit exactly etc. However in the real world, conditions are seldom static i.e. they are dynamic. How can such discrepancy be handled? For example if a firm realizes that profit per unit is not Rs 5 as estimated but instead closer to Rs 5.5, how will the final solution mix and total profit change? If additional resources, such as 10 labor hours or 3 hours of machine time, should become available, will this change the problems answer? Such analyses are used to examine the effects of changes in these three areas: 1. Contribution rates for each variable C FACTOR 2. Technological coefficients A FACTOR 3. Available Resources B FACTOR This task is alternatively called sensitivity analysis. It is also called as post optimality analysis. Sensitivity analysis often involves a series of what if? questions. What if the profit of product 1 increases by 10%? What if less money is available in advertising budget constraints? What if new technology will allow a product to be wired in one-third the time it used to take? So we can see that sensitivity analysis can be used to deal not only with errors in estimating input parameters to the LP model but also with managements experiments with possible future changes in the firm that may affect profits.

There are two approaches to determining how sensitive an optimal solution is to changes. The first is simply a trial and error approach, however we prefer the second approach of post optimality method i.e. after an LP problem has been solved, and we attempt to determine a range of changes in problem parameters that will not affect the optimal solution or change the variables in the solution. This is done without resolving the whole problem again. This is illustrated by the following example.

Consider an example of ABC Sound Company that makes CD players (called X1s) and stereo players (called X2s). Its LP Formulation is: MAXIMIZE PROFIT = $50X1 + $120X2 Subject to : 2X1 + 4X2 <= 80 (hours of electricians time available) 3X1 + 1 X2 <= 60 (hours of audio technicians time available) 1) ITERATIONS: Sensitivity Analysis Solution Cj Iteration 1 0 0 slack 1 slack 2 zj cj-zj Iteration 2 120 0 Stereo Players slack 2 zj cj-zj 0.5 2.5 60. -10. 1. 0.25 0. 1. 0. 0. 20. 40. 2,400. 2. 3. 0. 50. 4. 1. 0. 120. 1. 0. 0. 0. 0. 1. 0. 0. 80. 60. 0. Basic Variables 50 CD Players 120 0 0 Stereo slack slack Quantity Players 1 2

0. -0.25 120. 0. 30. -30.


Sensitivity Analysis Solution CD Players Maximize Electrician Hrs Audio Tech Hours Solution-> 3) SOLUTION LIST: Sensitivity Analysis Solution Variable CD Players Stereo Players slack 1 slack 2 Optimal Value (Z) Status NON Basic Basic NON Basic Basic Value 0. 20. 0. 40. 2,400. 50. 2. 3. 0. Stereo Players 120. 4. 1. 20. <= <= 80. 60. 2,400. 30. 0. RHS Dual

4) RANGE: Sensitivity Analysis Solution Reduced Cost 10. 0. Original Value 50. 120. Original Val Lower Bound -Infinity 100. Lower Bound Upper Bound 60. Infinity Upper Bound

Variable CD Players Stereo Players Constraint

Value 0. 20.

Dual Slack/Surplus Value

Electrician Hrs Audio Tech Hours

30. 0.

0. 40.

80. 60.

0. 20.

240. Infinity

ANALYSES OF EFFECT OF CHANGE IN C-FACTOR: 1) For Non-Basic Objective Function co-efficient:

Our objective is to find out how sensitive problems optimal solution is to changes in the C-Factors not in the basis. The answer lies in Cj-Zj row of Iterations table. Since this is a maximization problem, the basis will not change unless the Cj-Zj value of one of the non basic variables becomes positive. That is, the current solution will be optimal as long as all numbers in the bottom row are less than or equal to zero. Now Cj-Zj <= 0 is same as Cj <= Zj. Since X1s Cj value is Rs.50 and its Zj value is Rs.60, the current solution is optimal as long as the profit per CD does not exceed Rs.60, or does not increase by Rs.10. Similarly the C-Factor for S1 (per hour of electricians time) may increase from Rs.0 to Rs.30 without changing the current solution mix. In other words any change in the C-Factor for NonBasic Objective Function co-efficient: Affects only coefficient in the Cj-Zj row under the column of the variable whose objective coefficient is being changed. Does not affect profit.

2) For Basic Objective function co-efficient:

Let us consider changing the C-Factor of stereo players by . A change in C-Factor will affect the Cj-Zj values of all non basic variables

because this Cj is not only in Cj row but Cj column. This then impacts the Zj row. When we examine the S1 column in the table below:

-30 <= 0 -30 <= -120 <= or >= -120.

This implies that S1 is less sensitive to change than X1. S1 will not enter the basis unless the C-Factor drops from Rs.120 to 0. In other words any change in the C-Factor for Basic Objective function co-efficient: Affects only the coefficients in the Zj row and Zj-Cj row under the columns of the non basic variables. Affects Profit. The revised profit = (Profit before change + * coefficient in the constraint row of the variable whose objective function is being changed.)

Sensitivity Analysis Solution Cj Iteration 1 0 0 slack 1 slack 2 zj cj-zj Iteration 2 120 + 0 Stereo Players slack 2 zj 0.5 2.5 60 + . 1. 0. 120 + . 0.25 -0.25 30 + . 0. 1. 0. 20. 40. 2,400 + 20 . 2. 3. 0. 50. 4. 1. 0. 120 + . 1. 0. 0. 0. 0. 1. 0. 0. 80. 60. 0. Basic Variables 50 CD Players 120 + 0 0 Stereo slack Quantity slack 1 Players 2

cj-zj -10- .


-30 .



This leads us to the concept of shadow price i.e. the value of one additional unit of a scarce resource which provides important economic information. The negative of the numbers in the Cj-Zj rows slack variable columns are the shadow prices. In this case the Cj-Zj rows S1 Column is (-30) which suggests that the additional cost of one electrician hour should not exceed Rs.30. Similarly since Cj-Zj rows S2 column is 0, it suggests that the audio technician hours are under utilized. Now we cannot add an unlimited number of units of resources without eventually violating one of the problems constraints. So lets determine the range of shadow prices i.e. RIGHT HAND SIDE RANGING.

Quantity S1 RATIO 20 1/4 20/(1/4) = 80 40 -1/4 40/(1/4) = -160

From the above table its clear that we can decrease the electricians time resource by 80 hours i.e. to 0 hours or increase it by 160 hours i.e. to 240 hours without affecting the current solutions mix. If it is increased by a value beyond this range say it will: Affect the values in the solution column of the optimal simplex tableau.

Affect the profit. The revised profit = (Profit before change + * corresponding element in the Zj row and Cj-Zj row under the column of slack variable of the resource whose availability is changed.)

Operations Research An Introduction BY- Hamdy A. Taha (University of Arkansas, Fayetteville). Operations Research BY-Richard Bronson & Govindasami Naadimuthu. INTRODUCTION TO OPERATIONS RESEARCH BYHILIER & LIEBERMAN