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You are on page 1of 6

UNIVERSITY OF LONDON

MN3032 ZA

and the Social Sciences, the Diplomas in Economics and Social Sciences and

Access Route

Candidates should answer FOUR of the following EIGHT questions. All questions carry

equal marks.

Graph paper is provided at the end of this question paper. If used, it must be detached

and fastened securely inside the answer book.

A calculator may be used when answering questions on this paper and it must comply

in all respects with the specification given with your Admission Notice. The make and

type of machine must be clearly stated on the front cover of the answer book.

University of London 2015

UL15/0301

Page 1 of 6

D1

1.

Discuss what is meant by an OR approach to decision problems and outline its benefits.

Illustrate your answer by reference to any problem with which you are familiar.

(25 marks)

2.

(a)

Clearly explain what the JOURNEY (JOintly Understanding, Reflecting, and Negotiating

strategY) Making methodology involves.

(13 marks)

(b)

Apply the methodology to two problems with which you are familiar.

3.

(12 marks)

Briefly explain each of the following topics from the viewpoint of Operational

Research/Management Science:

(a)

MIP

(9 marks)

(b)

(9 marks)

(c)

MCDA

(7 marks)

UL15/0301

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D1

4.

An organisation selling small household items to the general public is reviewing the

performance of its branches. The data they have collected for these branches for the last full

financial year is shown below.

Branch

Number of

Revenue (m)

Number of employees

20.8

18.2

14.2

18.5

12.4

15

14

20

11

18

22

23

customers (000)

A

B

C

D

E

F

26.6

48.6

53.9

45.7

31.4

15.6

For example branch D (in the last full financial year) had 45700 customers, generated

revenue of 18.5 million and employed 18 people.

(a)

branches. Copy the table shown below into your answer book and fill in the efficiencies

and reference sets (where appropriate).

(12 marks)

Branch

A

B

C

D

E

F

(b)

Efficiency

Reference set

A colleague has argued that either branch A or branch C should be closed, since this

would increase the efficiencies of the other branches. They are unsure as to which of

these two branches it might be better to close and have asked you for advice as to

which one to close. Is it true that closing A or C will increase efficiency and if so by how

much? What would you advise and why?

(13 marks)

UL15/0301

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D1

5.

bus companies. These bus companies have adopted a very dynamic pricing structure (much

as airlines do) so that the price for exactly the same bus journey from bus stop A to bus stop

B can vary widely from week to week. Because of this customers often switch the bus

company that they use, such switching occurs at the start of every week when customers

purchase a new weekly bus pass.

An analysis of data has estimated that the transition matrix shown below applies for the

probability of switching between two companies at the start of every week.

To

company

X

Y

Z

From company

X

Y

Z

0.04

0.25

0.51

0.41

0.26

0.40

0.55

0.49

0.09

In this transition matrix, for example, there is a probability of 0.41 of a customer switching to

bus company Y from bus company X at the start of a week. The current market shares for

the three bus companies are 25%, 26% and 49% for companies X,Y,Z respectively.

(a)

What will be the market share for company X after two weeks?

(b)

What is the long-run prediction for the market shares for each of the three companies?

(16 marks)

(c)

and give your opinion as to whether in the situation described in this question using

Markov theory is a good idea or not. Give your reasons.

(6 marks)

UL15/0301

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(3 marks)

D1

6.

The payoff table below shows for a company the final year end profits expected (m) from

four possible choices (A, B, C and D) with respect to three possible scenarios (S1 to S3

respectively) for the forthcoming year.

A

B

C

D

S1

-1

-4

1

3

S2

1

-9

5

-6

S3

3

1

-7

-1

Here, for example, if the company makes choice C (and it can only choose one of A, B, C or

D) and the scenario for the forthcoming year turns out to be S3 then it makes a loss of 7m.

Scenario S1 is believed to have probability 0.15 and scenario S2 is believed to have

probability 0.30. The scenarios considered have been produced by an external consultant

who has never worked for the company before. The financial values given have been

produced by company personnel of great experience working from the scenarios produced

by the external consultant.

(a)

Copy the following table into your answer book and fill in the choice that should be

made under each criterion and the associated value.

Criteria

Optimistic

Conservative

Regret

Equally likely

Expected monetary value

Choice

Associated value

If these criteria suggest different choices how can the company choose amongst them

to make a single choice?

(13 marks)

(b)

One colleague has argued that sensitivity analysis needs to be conducted with respect

to the financial values used, since these are critical in determining the values you have

used in the table given above. Another colleague has argued that it is of greater

importance to vary the scenarios, since three scenarios are insufficient to capture the

future possibilities the company faces next year. How might you respond to these

arguments and which colleague would you choose to support?

(4 marks)

(c)

If, taking just the three scenarios considered above, all financial values could vary by

10% discuss how, with the aid of Excel, you could investigate what choice the

company should make.

(8 marks)

UL15/0301

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D1

7.

8.

A company requires a part X at the rate of 950 units per week and to meet this demand it

currently orders every four weeks from its external supplier. Each unit of X costs 44.50

when purchased from the current supplier and the ordering cost associated with placing an

order is estimated to be 100. The current interest rate is 2% per year and the warehousing

costs associated with storage and maintenance are 5 per unit per year. The company

operates 52 weeks a year, with a five day working week.

(a)

How much of X should the company order when it places an order and what would be

the associated total cost per year?

(4 marks)

(b)

Can you suggest a better order quantity for X? If so what is it and what is the associated

total cost per year?

(6 marks)

(c)

The current supplier has stated that as the company is a long-standing and loyal

customer they are prepared to give the company a discount of 1% on each unit ordered

if they order more than 2000 units at a time. Moreover the current order policy of

ordering every four weeks fits in well with the suppliers production planning system and

hence they are prepared to increase this discount to 3% on each unit ordered, but only

if the company still order every four weeks (and order more than 2000 units at a time).

What would you advise the company to do?

(9 marks)

(d)

A colleague has examined the calculations you have carried out in (a), (b) and (c)

above and commented that the cost savings you estimate from any changes in order

policy seem small and it would be better to move to a JIT policy, with daily deliveries

from the supplier. How would you respond to this?

(6 marks)

(a)

Minimise

Subject to

3x + 7y

2x + y 13

2x 5y 7

x,y 0

Constraint 1

Constraint 2

(11

marks)

(b)

What is the opportunity cost for x and the reduced cost for y?

(2 marks)

(c)

What is the shadow price for constraint 1 and the dual value for constraint 2?

(6

marks)

(d)

(6 marks)

END OF PAPER

UL15/0301

Page 6 of 6

D1

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