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MBA-2nd Semester Sikkim Manipal University-Distance Education

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Question (1):- Describe the framework of Operations Research?


Answer: Operations Research provides an integrated framework for making various business decisions. Therefore,
it is of utmost importance for an organization to have a clear understanding of this framework for solving
business problems. The framework involves seven stages:-

1. Formulating the Problem


O.R. is a research into the operation of a man, machine, and organization and must consider the
economics of the operation. In formulating a problem for O.R. study analysis must be made of the
following major components:

The environment
The objectives
The decision maker
The alternative courses of action and constraints.

Out of the above four components environment is most comprehensive as it provides a setting for the
remaining three. The operation researcher shall attend conferences, pay visits, send observation and
perform research work thus succeeds in getting sufficient data to formulate the problems.

2. Constructing a Model to Represent the System under Study


Once the project is approved by the management, the next step is to construct a model for the system
under study. The operation researcher can now construct the model to show the relations and
interrelations between a cause and effect or between an action and a reaction.
Now the aim of operation researcher is to develop a model which enables him to forecast the effect of
factors crucial to the solution of given problem. The proposed model may be tested and modified in order
to work under stated environmental constraints. A model may also be modified if the management is not
satisfied by its performance.

3. Deriving Solution from the Model


A solution may be extracted form a model either by conducting experiments on it i.e. by simulation or by
mathematical analysis. No model will work appropriately if the data is not appropriate. Such information
may be available from the results of experiments or from hunches based on experience.
The date collection can clearly affect the models output significantly. Operation researcher should not
assume that once he has defined his objective and model, he has achieved his aim of solving the problem.
The required data collection consumes time to prepare if data collection errors are to be minimized.

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4. Testing the Model and the Solution Derived from it


As has been pointed out earlier a model is never a perfect representation of reality. But if properly
formulated and correctly manipulated, it may be useful in providing/predicting the effect of changes in
control variables on overall system effectiveness.
The usefulness or utility of a model is checked by finding out how well it predicts the effect of these
changes. Such an analyze is usually known as sensitivity analysis. The utility or validity of the solution
can be verified by comparing the results obtained without applying the solution with the results obtained
when it is used.

5. Establishing Controls over the Solution


The next phase for the operation researcher is to explain his findings to the management. It may be
pointed out that he should specify that condition under which the solution can be utilized.
He should also point out weaknesses if any so that management will know what risks they are taking
while employing the model to generate results. Thus he should also specify the limits with in which the
results obtained from using the model are valid. He should also define those conditions under which the
model will not work.

6. Implementation of the Solution


The last phase of the operation research methodology is implementation of solutions obtained in the
previous steps. In operation research though decision making is scientific but its implementation involves
so many behavioral issues. Therefore the implementing authority has to resolve the behavioral issues. He
has to sell the idea of utility of O.R not only to the workers but also to superiors.

7. Repeat and Refine


Once implementation is complete, responsibility for monitoring the system is usually turned over to an
operating team. From an O.R. perspective, the primary responsibility of the latter is to recognize that the
implemented results are valid only as long as the operating environment is unchanged and the
assumptions made by the study remain valid. Innovation is a continual activity. Theres always room for
improvement.

Question (2):- a. Explain the graphical method of solving Linear


Programming Problem?
Answer:In the organization, managers are required to make judicious use of scarce resources, such as
men, materials, machines and capital, to minimize costs and maximize profits. A technique that is
used to select the best alternative from a set of feasible ones in situations where the objective
function and constraints are expressed in linear form is linear programming.

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Linear programming can be applied if certain requirements are met. These requirements are as
follows:

The objective function should be clearly defined and measurable in quantitative terms; for
e.g. maximization of profits and minimization of costs.

The activities to be included should be clear and quantitative in nature; for e.g. products to
be included in production scheduling should be clearly defined.

The resources to be allocated should be measured quantitatively.

There should be a number of alternatives courses of actions available to managers.

The graphic method of solving linear programming problems consists of the following steps :
Step 1: Plot the Constraints: - To plot the constraints, treat each constraint as equalities so as it
represents a straight line. Because of Non-negativity constraints the graph will be in the first
quadrant. Depending upon inequalities mark the regions either below or above the line.
Step 2: Identify the feasible region: - The feasible region is the region in which all the
constraints are satisfied. In other words, it is the common portion of all the regions represented
by all the constraints of the problem.
Step 3: Locate the solution points: - The feasible region contains an infinite number of points.
In this step, search those points which will make objective function optimum. Note that such
points will be only from corner points of the solution space. This is because of extreme point
theorem. Let the solution space of an L.P.P. be a complex region bounded by lines in the plane.
Then the objective function of L.P.P. attends its maximum (or minimum) at the vertices (corners
of the feasible space region).
Step 4 : Select any of the following two methods :(a)

ISO Profit (or ISO Cost) Method:

Choose a convenient profit (or cost) and draw as iso profit (or iso cost) line so that it
falls within shaded region.
Move this iso profit (or iso cost) line parallel to itself further (closer) from (to) the
origin.
Identify the optimum solution as the co ordinate of that point on the feasible region
touched by the highest possible iso profit line (or lower possible iso cost) line.
Read the co ordinates of optimum point either directly from the graph or by
simultaneous solution two lines intersecting at that point.
Compute the optimum profit (or cost) values

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(b)

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Corner Point Method:

Identifying each of the corner or extreme points of the feasible regions either directly
from the graph or by method of simultaneous equation.
Evaluate the objective function at each of the corner points of the feasible region.
Identify the optimum solution which corresponds to those corner points which gives the
optimum values of the objective function.

b. A paper mill produces two grades of paper viz., X and Y. Because of raw
material restrictions, it cannot produce more than 400 tons of grade X paper
and 300 tons of grade Y paper in a week. There are 160 production hours in a
week. It requires 0.20 and 0.40 hours to produce a ton of grade X and Y
papers. The mill earns a profit of Rs. 200 and Rs. 500 per ton of grade X and
Y paper respectively. Formulate this as a Linear Programming Problem?
Solution:Let x1 and x2 be the numbers of units of two grades of X and Y Since the profit for the two
grades of paper X and Y are given, the objective function is to maximize the profit.
MAX (Z) =200X1+500X2
There are 2 constrains one w.r.t. to raw materials and the other w.r.t to production hours. The
complete LPP is Max (Z) =200X1=500x2; Subject to
X1<=400
X2<=300
0.20x1+0.40x2<=160
x1 >=0 , x2 >=0
x1 = 200 tons
x2 = 300 tons
Profit = 190000.

Question (3):- a.Explain some of the important terms of the transportation


Problem?
Answer:The term transportation is associated with the movement of individuals or products from one
place to another through various mediums, such as cars, airplanes, trains, buses, trucks, ships,
etc. In operations research, a transportation problem is a special type of Linear Programming
Problem (LPP) that deals with the optimal distribution of goods. In this process, the distribution
of goods from various locations (sources of supply) to different destinations (points of demand)
is done in such a way that the total transportation cost is minimized. A transportation problem
usually consists of the following elements:
m = Source (supply centres)
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n = Destination (demand centres)


si = Supply of a good available at source i
dj = Demand for the good at destination j
cij = Cost of transporting one unit of the good from source i to destination j
A transportation matrix is formed with the help of all the aforementioned elements, which is shown in the
following table:General Format of Transportation Matrix Destination
Source
S1
S2
S3
:
Sm
Demand

D1
C11
C21
C31
:
Cm1
d1

D2
C12
C22
C32
:
Cm2
d2

D3
C13
C23
C33
:
Cm3
d3

Dn
C1n
C2n
C3n
:
Cmn
dn

Supply
s1
s2
s3
:
sm

b. Explain the steps of MODI (Modified Distribution) method?


Answer:The MODI method is also known as U-V method, helps in providing the minimum cost solution
helps in providing the minimum cost solution for the transportation problem. In this method, a
closed route for vacant cell having maximum opportunity cost is made. The steps involved in the
evaluation of unoccupied cells are as follows;
1) For an IBFS with m + n 1 occupied cell, calculate u i ( I = 1,2,3m) and vj( j = 1,2,3) for
each row and column. IBFS can be obtained by any of the three methods discussed earlier.
2) Assign zero value to any one of the u i or vj variables. It is preferred to assign zero values to
the ui or vj, which contains the maximum number of allocation in a row and column,
respectively. After that, determine the values of remaining uis and vjs for rows and columns,
by following relation :
Cij = ui + vj for all occupied cells (i, j)
3) For unoccupied cells, calculate the opportunity cost dij by using the following relationship:
Dij = cij - (ui+ v) for all occupied cells i and j
4) Examine the sign of each dij

If all dij > 0, then the current basic feasible solution is optimal and unique.

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If all dij = 0, then the current basic feasible solution is optimal and an alternate
solution also exists.

If one or more dij < 0, then the current basic feasible solution is not optimal.

5) A closed path or loop for the vacant cell obtained in step 4.


It should be noted here that the right angle turn in this route is allowed only in the starting of
occupied cells and at the end of the original unoccupied cell. A loop consists of successive
horizontal and vertical lines whose end points must be occupied cells.
6) Assign alternatives signs (that is +, -) at the corner points of the closed path and start from
the + sign at the unoccupied cell.
7) Obtain the highest number of units that should be transported to the vacant cell. A lowest
value having negative sign on the closest path specifies the amount of units that can be
dispatched to the entering cell. Now, this amount is added to the cells having the positive (+)
sign while subtracted from the cells containing the negative (-) sign, which are located on the
corner points of a closed path. In this manner, an unoccupied cell becomes an occupied.
8) Stop the procedure when all dij _> 0, for unoccupied cells, otherwise test the revised solution
further for optimality.

Question (4) a. Explain the steps involved in Hungarian method of solving


Assignment problems?
This method operates on the principle of matrix reduction. It also called Floods technique or the
reduced matrix method. In this method, it is assumed that the cost matrix contains non negative
integers and the objectives function of the assignment problem is of minimization type. The
following steps are needed using Hungarian method:
1)

Identifying he requirement of dummy cells: It implies that a dummy row or column


should be added to a cost matrix if the number of rows is not equal to the number of
columns in an assignment problem. The assignment cost for dummy cell is always zero.
If the number of rows is equal to the number of columns, go to step 2.

2) Finding out the opportunity cost table: it involves identifying the minimum element
from each row or column of the cost matrix and subtracting it from all the elements of
that row or column. The resultant matrix would contain one zero in every column and
row. Such a matrix is called a reduced matrix.
3) Making assignments in the opportunity cost matrix: it involves the following steps:

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Examine the rows sequentially and select those that contain only single zeroes.

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Make a box on this zero and cross all the zeroes of the columns and rows in which
this boxed zero is lying.

Examine other rows for single zeroes, and then repeat the process.

Repeat the above process for columns as well.

Repeat the process till all the zeroes in the rows and columns are either boxed or
crossed in the cross in the cross matrix; if not repeat the process.

4) Finding the optimality criterion: It refers to the selection criteria of an optimal solution.
An optimal solution of an assignment is obtained if the number of assigned cells equals
the number of rows and columns. The total cost involved in the optimal assignment is
calculated by adding the original cost figures in the occupied cells. In the case the optimal
solution is not obtained, proceed to the step 5.
5) Revising the opportunity cost table: It involves drawing the least number of vertical
and horizontal lines required to shield all the zeroes in the reduced matrix, which is
obtained from the step 3 by implementing the following procedures:

Mark a tick on all the rows that are not assigned.

Examine the marked rows. If any zero cells occur in those rows, mark a tick on
the respective columns containing those zeroes.

Examine the marked columns. If any assigned zero occurs in those columns, tick
the respective rows that contain those assigned zeroes.

Repeat this process until no more rows or columns can be marked.

Draw a straight line through each marked column and each unmarked row.

If the number of lines drawn is equal to the number of rows or columns, the
current solution is the optimal solution; otherwise go to next step 6.

6) Developing the new revised opportunity cost table: it includes the following steps;

Select the smallest element from all the uncovered elements and term this element
k.

Subtract this smallest element (k) from all the elements not covered by a line.

Add k to the elements that a lie at the intersection of two lines.

Elements in cells covered by one line remain unchanged.

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7) Repeating the procedure: it involves the repetition of step 3 6 until an optimal


solution is obtained.

b. Find an optimal solution to an assignment problem with the following


cost matrix:
J1
M1
M2
M3
M4

10
5
5
2

J2
9
8
4
3

J3
7
7
6
4

J4
8
7
5
5

Answer:First, the minimum element in each row is subtracted from all the elements in that row. This
gives the following reduced-cost matrix.
J1
J2
J3
J4
M1
3
2
0
1
M2
0
3
2
2
M3
1
0
2
1
M4
0
1
2
3
Since both the machines M2 and M4 have a zero cost corresponding to job J1 only, a feasible
assignment using only cells with zero costs is not possible. To get additional zeros subtract the
minimum element in the fourth column from all the elements in that column. The result is shown
in the table below.
J1

J2
J3
J4
M1
3
2
0
0
M2
0
3
2
1
M3
1
0
2
0
M4
0
1
2
2
Only three jobs can be assigned using the zero cells, so a feasible assignment is still not possible.
In such cases, the procedure draws a minimum number of lines through some selected rows and
columns in such a way that all the cells with zero costs are covered by these lines. The minimum
number of lines needed is equal to the maximum number of jobs that can be assigned using the
zero cells.
J1
J2
J3
J4
M1
4
2
0
0
M2
0
2
1
0
M3
2
0
2
0
M4
0
0
1
1
A feasible assignment is now possible and an optimal solution is assigned
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M1 to J3
M2 to J1
M3 to J4
M4 to J2
The total cost is given by: 7 +5+ 5+ 3 = 20
An alternate optimal solution is:
M1 to J3
M2 to J4
M3 to J2
M4 to J1
In case a feasible set could not be obtained at this step, one has to repeat the step of drawing lines
to cover the zero and continue until a feasible assignment is obtained.

Question (5):- Explain Monte Carlo Simulation?


Answer:Monte Carlo simulation is a problem solving technique that is used to represent probability of
certain outcomes by running a number of trials runs called simulations and using random
variables. The Monte Carlo simulation technique involves 5 steps;

Making probability distribution for variables: it involves estimating probability


distribution for the given variable based on the past experience. The distribution can be based
on Poisson, binomial or normal distribution.

Building a cumulative probability distribution for each variable: the cumulative


distribution of an experiment represents all possible values and probabilities of outcomes. It
can be determined from the given probability distribution.

Setting random number intervals: Implies that after determining the cumulative
distribution for each variable, a set of numbers to represent each possible outcome is
assigned. The set of numbers is also known as random number intervals.

Generating random numbers: Implies that a random number is a series of two digit or
three digit numbers. A random number can be generated through many ways.

Simulating the experiment through random sampling: Involves repeating the process till
the required number of simulation runs has been generated.

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b. Hindustan Bakery is popular for its delicious fruit cakes. The table below
shows the daily demand for the bakerys cakes.
Daily
0
15
25
35
45
50
demand
Probability 0.01
0.15
0.2
0.5
0.12
0.02
Simulate the demand for cakes for 10 days using the following sequence of
random numbers: 22, 26, 48, 53, 93, 89, 42, 91, 25, 20 If 35 cakes are baked
every day in Hindustan Bakery, determine the inventory stock. In addition,
estimate the daily average demand for cakes on the basis of simulated data.
Solution:Probability Distribution for the Production of Cakes
Daily
Probability
Cumulative
Random
Demand
Probability
Numbers
0
.01
.01
0
15
.15
.16
1 - 15
25
.2
.36
16 - 35
35
.5
.86
36 - 85
45
.12
.98
86 - 97
50
.02
1
98 - 99
At the start of simulation, the first random number 22 generates the demand of 25 cakes. The
demand is determined from the cumulative probability values given in above table. At the end of
the first day, the closing quantity is 10 (35-25) cakes. Similarly we calculate daily demand.
Calculation of Daily Demand for Cakes
Days

Demand

1
2

Random
Number
22
26

25
25

+10
+20

3
4
5
6
7
8
9
10

48
53
93
89
42
91
25
20

35
35
45
45
35
45
25
25

+20
+20
+10
0
0

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Daily production = 35 cakes

-10
0
+10

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Total

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340

From the above table, it can be observed that the total demand is 340. Therefore, the daily
average demand of cakes would be:
Average demand = Total demand/ number of days =340/10 = 34 cakes.

Question (6):- a) State the assumptions of game theory?


Answer:Game theory provides an appropriate solution of a problem if its conditions are properly
satisfied. These assumptions are applicable to two person as well as n person game. Some of
these assumptions are:
Assumes that a player can adopt multiple strategies for solving a problem.
Assumes that there is an availability of pre-defined outcomes.
Assumes that the overall outcome for all players would be zero at the end of the
game.
Assumes that all players in the game are aware of the game rules as well as the
outcomes of the other players.
One player attempts to maximize his/her gains and the other attempts to minimize
his/her losses.
Assumes that players take a rational decision to increase their profit.

b. What are the characteristics of Markov chain?


The following are the properties of a Markov chain:
There are finite numbers of possible states.
States are both collectively exhaustive and mutually exclusive.
The transition probabilities depend only upon the current state of the system, i.e., the
conditional probabilities of the next state is independent of the states prior to present state.
The long- run probability of being in a particular state will be constant over time.
Markov chains are classified based on their order:
First order Markov process: Assumes that the possibility of the occurrence of the
next outcome depends upon the present outcome.
Second order Markov process: Assumes that the possibility of the occurrence of the
next outcome is dependent upon previous two outcomes.
Third order Markov process: Assumes that the possibility of the occurrence of the
next outcome is dependent upon the previous three outcomes.

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c. What are the rules for prioritizing jobs?

First Come First Served (FCFS): Refers to the rule of priority in which job orders are
processed on the basis of their order of arrival in a production department.

Shortest Operating Time (SOT): In this jobs are sequenced on the basis of their processing
time. If the processing time of the job is less as compared to others, it would be run first.

Earliest Due Date (EDD): Refers to the rule of priority that classifies and sequences jobs on
the basis of their due dates. In EDD, a job having the nearest due date is processed first.

Stack Time Remaining (STR): Refers to another important rule of priority. STR can be
determined by using the following formula:
STR = Time left before due date Time left in completing the process.

Critical Ratio (CR): Refers to a ratio that determined by subtracting the due data from the
current date, and then dividing the resultant value by the value number of remaining working
days.

Last Come First Serve (LCFS): refers to the rue of priority that is adopted by the
purchasing department of an organization by default. When the department receives orders,
they are located on the top of the pile.

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