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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)

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

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:

paint paint (tons)

Raw material M1 6 4 24

Raw material M2 1 2 6

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:

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.

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