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Problem #1

Investment Advisors, Inc., is a brokerage firm that manages stock portfolios for a number of
clients. A particular portfolio consists of U shares of U.S. Oil and H shares of Huber Steel. The
annual return for U.S. Oil is $3 per share and the annual return for Huber Steel is $5 per share.
U.S. Oil sells for $25 per share and Huber Steel sells for $50 per share. The portfolio has
$80,000 to be invested. The portfolio risk index (0.50 per share of U.S. Oil and 0.25 per share
for Huber Steel) has a maximum of 700. In addition, the portfolio is limited to a maximum of
1000 shares of U.S. Oil. The linear programming formulation that will maximize the total annual
return of the portfolio is as follows:

a. What is the optimal solution, and what is the value of the total annual return? (Solve
Graphically)
b. Which constraints are binding? What is your interpretation of these constraints in terms of
the problem?
c. Compute the range of optimality for objective function coefficient. (Objective function
sensitivity)
d. What are the dual values for the constraints? Interpret each. (Right hand side sensitivity)

Based on the graphical sensitivity analysis, answer the following question:

e. Would it be beneficial to increase the maximum amount invested in U.S. Oil? Why or why
not?
f. How much would the return for U.S. Oil have to increase before it would be beneficial to
increase the investment in this stock?
g. How much would the return for Huber Steel have to decrease before it would be beneficial to
reduce the investment in this stock?
h. How much would the total annual return be reduced if the U.S. Oil maximum were reduced
to 900 shares?

Answer the above questions by using graphical approach. Then solve the problem with solver
and check your above answers.
Problem#2

Complete the Ready Mikks Problem sensitivity analysis graphically.

Ready Mikks produces both interior and exterior paints from two raw materials, M1 and M2. The
following table provides the basic data of the problem:

Exterior Interior Maximum daily availability


paint paint (tons)
Raw material M1 6 4 24
Raw material M2 1 2 6

Profit per ton (Tk. 1000) 5 4

A market survey indicates that the daily demand for interior paint cannot exceed that of exterior
paint by more than 1 ton. Also, the maximum daily demand of interior paint is 2 tons.

Ready Mikks wants to determine the optimum (best) production mix of interior and exterior
paints that maximize the total daily profit.

Problem 3

The Xecko Tool Company is considering bidding on a job for two airplane wing parts. Each wing part must
be processed through three manufacturing stages stamping, drilling, and finishing for which the
company has limited available hours. The linear programming model to determine how many of part 1
(x1) and part 2 (x2) the company should produce in order to maximize its profit is as follows:

maximize Z = $650x1 + 910x2

A. Solve the model graphically.


B. Indicate how much slack resource is available at the optimal solution point.
C. Determine the sensitivity ranges for the profit for wing part 1 and the stamping hours available.
D. Solve this model by using Excel.