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COMPREHENSIVE ASSIGNMENT FOUR

QUESTION ONE
a) Define the following terms used in game theory:
i) Dominance.
marks)
ii) Saddle point.
iii) Mixed strategy.
iv) Value of the game
marks)

(2
(2 marks)
(2 marks)
(2

b) Consider the two person zero sum game between players A and B given the
following pay-off table:
1
Player A
Strategies

Player B Strategies
2
3

-1

Required:
i) Using the maximin and minimax values, is it possible to determine the value
of the game?
Give reasons.
(3 marks)
ii) Use graphical methods to determine optimal mixed strategy for player A and
determine
the value of the game.
(9 marks)
(Total: 20
marks)
QUESTION TWO
Central and Eastern Industries is planning to introduce a new mobile phone
service. To do so, the following activities are necessary:
Preceding
Expected
Standard
Activity
Activity
Time
Deviation
(weeks)
(weeks)
A
6
1.0
B
3
0.5
C
A
5
1.0
D
A
4
1.0
E
A
3
0.5
F
C
3
0.5
G
D
5
1.0
H
B.D.E
5
1.0
I
H
2
0.5
J
F.G.I
3
1.0

The costs of the project are estimated to be Sh.10 million. If the projects is
completed within 24 weeks the expected net revenue will be about Sh.100
million but if the deadline of 24 weeks is not met, the service will fail to
penetrate the market and a net revenue of Sh.2 million is expected.
Required:
a) Determine how long the project would take.
(8 marks)
b) If the start of activities B, E and G are respectively delayed b 3,2 and 2
weeks, how would this affect the total project time?
(6 marks)
c) Determine a 95% confidence interval for the expected time of the project
and explain your answer. Ignore the delays referred to in (b) above.
(3 marks)
d) Determine the expected profit on this project. Again ignore the delays
referred
in (b) above
(3
marks)
(Total: 20
marks)
QUESTION THREE
a) Explain the value of sensitivity analysis in linear programming problems and
show how dual values are useful in identifying the price worth paying to
relax constrains.
(4 marks)
b) J.A Computers is a small manufacturer of personal computers. It
concentrates production on three models, a Desktop 286,and a laptop
486,each containing one CPU Chip. Due to its limited assembly facilities J.A
Computers are unable to produce more than 500 desktop model or more
than 250 Laptop models per month. It has one hundred and twenty 80386
chips (these are used in Desktop 386) and four hundred 80286 chips(used
in desktop 286 model requires four hours of production time, and the laptop
486 requires three hours of production time. J.A Computers have 2000hours
of production time available for the coming month. The company estimates
that the profit on a desktop 386 is Sh.5000, for a desktop 286 the profit is
Sh.3400 and Sh.3000 profit for a Laptop 486.
Required:
Formulate this problem as a profit maximization problem and mention the basic
assumptions that are inherent in such models.
(7 marks)
a) An extract of the output from a computer package for this problem is given
below:
Output solution
X1 = 120, X2 = 200, X3 = 200

Dual values Constraints 3


Constraints 4
Constraints 5

150
90
20

Sensitivity analysis of objective function coefficients


Variable
Lower limit
Original value
X1
100
250
X2
150
170
X3
127.5
150
Sensitivity analysis
Constraints
1
2
3
4
5
X1
X2
X3

=
=
=

on R. H. S ranges
Lower limit
320
200
80
350
1950

Upper limit
No limit
200
170

Original value
500
250
120
400
2000

Upper limit
No limit
No limit
130
412.5
2180

Monthly level for Desktop 386.


Monthly production level for Desktop 286
monthly production level for Laptop 486

Required:
i) Interpret the output clearly, including optimum product mix, monthly profit,
unused resources and dual values.
(3
marks)
ii) Explain the purpose of upper limits for the variables X 1, X2 ,X3 and
constraints 1 to 5.
(3
marks)
iii) Calculate the increase in profit if the company is able to produce a further
10 CPU 80836 chips.
(3 marks)
(Total: 20
marks)
QUESTION FOUR
a) Give two applications of simulation in business.
marks)

(2

b) Collins Simiyu recently acquired a piece of land in Kitale. A property


development company has offered him Sh.300,000 for the piece of land. He
has to make a decision on whether to cultivate the piece of land or to sell it
to the property development company. if he decides to cultivate the land,
there is a probability of getting a high, medium or low harvest. The
expected net income for each of the above states of harvest is shown below:
State of
harvest
High
Medium
Low

Net income
(Sh.)
500,000
100,000
(200,000)

From past experience, there is a 10 per cent probability that the harvest will be
low, a 30 pr cent probability that the harvest will be medium and a 60 per cent
probability that the harvest will be high. Collins Simiyu can engage an
agricultural expert to carry out a survey on the productivity of the land, which
will cost him Sh.30,000. The agricultural expert gives the following information
as to the reliability of such surveys (prior probabilities).
Results of
survey
Accurate
Not accurate

State of harvest
High
0.35
0.25
0.60

Medium
0.10
0.10
0.20

Low
0.05
0.15
0.20

Total
0.5
0.5
1.0

Required:
i) Construct a decision tree for the above problem.
(6 marks)
ii) The expected monetary value for each decision
(10 marks)
iii) The decision that you would recommend
marks)

(2
(Total: 20

marks)
QUESTION FIVE
a) Explain the difference between assignment and transportation problems.
(4 marks)
b) State the assumptions made in solving a transportation problem.
(4 marks)
c) Umoja Engineering Works Ltd. Has a network of branches all over Kenya.
The branches are used to service, repair and install equipment for their
clients.
Currently, the Nairobi branch has four clients who require
installation of equipment. Each client requires the services of one engineer.
There are four engineers who are not engaged at the moment and can be
assigned any one of the tasks. However, these engineers have to travel from
different locations and the Nairobi branch has to meet their travel and
subsistence allowances. The allowances vary from one engineer to another and
according to the client the engineer has been assigned to work for.
The table below shows the costs (in thousands of shillings) associated with each
engineer.
Engineer
A
B

1
37.0
57.0

Client
2
27.0
22.0

3
34.0
79.0

4
21.0
34.0

C
D

22.0
39.0

25.0
42.0

61.0
54.0

45.0
43.0

Required:
i) The assignments to be made in order to minimize the total cost of the
engineers.
(10 marks)
ii) The minimum cost of using engineers.
(12 marks)
(Total: 20
marks)
QUESTION SIX
a) Define the following terms as used in the network analysis:
i) Crash time
ii) Optimistic time
marks)
iii) Forward pass
marks)
iv) Dummy activity
marks)
v) Slack

(2 marks)
(2
(2
(2
(2 marks)

b) James Mutiso is a computer engineer in an information technology firm. The


firm has decided to install a new system to be used by the firms help desk.
James Mutiso has identified some activities required to complete the
installation.
The table below provides a summary of the activities durations and the
required number of technicians:
Activity
1-2
1-3
2-4
2-5
3-4
3-6
4-5
5-6
6-7

Duration
(Weeks)
3
1
3
2
2
4
2
2
2

Required number of
technicians
2
4
4
2
4
4
2
2
2

Required:
i) Draw a gantt chart for the project.
marks)
ii) Mr. Mutiso would like to reschedule activities so that not more than 6
technicians are required each week.

(6

Determine if this is possible and how it can be achieved by rescheduling


the activities.
(4 marks)
(Total: 20
marks)
QUESTION SEVEN
Regal investments has just received instructions from a client to invest in two
shares; one an airline share, the other an insurance share. The total maximum
appreciation is share value over the next year is to be maximized subject to the
following restrictions:
The total investment shall not exceed Sh.100,000
At most Sh.40,000 is to be invested in the insurance shares
Quarterly dividends must total at least Sh.2,600
The airline share is currently selling for Sh.40 per share and its quarterly
dividend is Sh.1 per share. The insurance share is currently selling for Sh.50
per share and the quarterly dividend is Sh.1.50 per share. Regals analysts
predict that over the next year, the value o f the airline share will increase by
Sh.2 per share and the value of the insurance share will increase by Sh.3 per
share.
A computer software provided the following part solution output:
Objective Function Value = 5,400
Variable

Number

Airline shares
Insurance shares

1,500
800

Reduced
cost
0.000
0.000

Constraint
Total investment
Investment in insurance
Dividends

Slack/Surplu
s
0.000
0.000
100,000

Dual
prices
0.050
0.010
0.000

Objective coefficient
Ranges
Variable

Lower limit

Airline share

2.5000

Current
value
3.000

Insurance share

0.000

2.000

Right-hand Side Ranges


Constraint

Lower limit

Total investment

96,000.00

Current
value
100,000

Upper limit
No upper
limit
2.400
Upper limit
No upper
limit

Investment in insurance
Dividends

20,000.00
No lower limit

40,000
2,600

100,000.00
2,700.00

Required:
i) Formulate the above problem.
(7
marks)
ii) Explain what reduced cost and dual prices columns above mean.
(5 marks)
iii) How should the clients money be invested to satisfy the restrictions?
(4 marks)
iv) Suppose Regals estimate of the airline shares appreciation is in error,
within what limits must the actual appreciation lie for the answer in (c)
above to remain optimal?
(4 marks)
(Total: 20
marks)
QUESTION EIGHT
The linear programming model and output model below represent a problem
whose solution will tell a road side kiosk owner how many of the four different
types of household goods to stock in order to maximize profits. It is assumed
that every item stocked will be sold. The variables measure the packets of
Unga, Spaghetti, Rice and Sugar to stock respectively. The constraints
measure storage space in units, special display racks, demand and a marketing
restriction, respectively.
Maximize Z = 4X1+ 6X2+ 5X3+ 3.5X4
Subject to :
2X1 + 3X2+ 3X3+ X1 120
1.5X1 + 2X2
54
2X2 + X3 + X4
X2 + X3
12
Where X1
X2
X3
X4

=
=
=
=

Optimal
solution
Variable
X1
X2
X3
X4
Constraint
1

packets
packets
packets
packets

120 (1)
(2)
72 (3)
(4)

of
of
of
of

Unga
Spaghetti
Rice
Sugar

Value
12.00
0.00
12.00
60.00

Reduced cost
0.50
-

Stack/surp
lus
-

Dual/shadow
price
2.00

2
3
4

Objective Coefficient Ranges


Variable
Lower limit
X1
X2
X3
X4

1.50
No limit
4.50
3.00

Right Hand Side Ranges


Constrain
Lower limit
t
1
96
2
18
3
24
4
0

1.50
-2.50
Current
value
-

Upper
limit
5.00
6.50
7.50
No limit

Current value

Upper limit

168
No limit
96
24

Required:
a) Determine the retailers optimal profit level.
(2 marks)
b) Determine and interpret the missing values under:
i)
ii)
iii)
iv)
v)

Reduced cost column.


(2
marks)
Slack/surplus column, indicate whether the value is a slack or a surplus.
(2 marks)
Dual/shadow price column.
(2 marks)
Current value column under objective coefficient ranges.
(2 marks)
Current value column under right hand side ranges.
(2 marks)

c) Interpret the value 0.50 under the reduced cost column and values; 2.00,
1.50 and -2.50 under the dual/shadow price column
(2 marks)
d) Determine whether the current, optimal solution would change if the current
profit of packets of Unga is increased by Sh.2.00.
(2 marks)
e) Determine by how much the amount of space would increase before there is
a change in the dual/shadow price.
(2 marks)
f) The above problem could have been solved manually. Explain how the
optimal solution can be determined using the manual approach.
(2 marks)
(Total: 20
marks)