MBA024

OPERATIONS RESEARCH

Semester II Theory Examination 2011-12

By Prof. Ritesh Singhal

PAPER ID: 7113, MBA024/PUR-40430

SECTION – A

Q.1. Attempt any four

a) Describe the applications of operations research in managerial decision making.

Sol.

Decision-making in today’s social and business environment has become a complex task. High costs of
technology, materials, labour, competitive pressures and so many different economic, social as well as
political factors and viewpoints greatly increase the difficulty of managerial decision-making. Knowledge
and technology are changing rapidly, the new problems with little or no precedents continually arise.
Well-structured problems are routinely optimized at the operational level of organizations, and
increased attention is now focused on broader tactical and strategic issues.

To effectively address these problems and provide leadership in the advancing global age, decision-
makers cannot afford to make decisions by simply applying their personal experiences, guesswork or
intuition, because the consequences of wrong decisions are serious and costly. Hence, an understanding
of the applicability of quantitative methods to decision-making is of fundamental importance to
decision-makers. For example, entering the wrong markets, producing the wrong products, providing
inappropriate services, etc., will have worst consequences for organizations.

Operations research facilitates the comparison of every possible alternatives (courses of action or acts)
to know the potential outcomes, permits examination of the sensitivity of the solution to changes or
errors in numerical values, and encourages rational decision-making based on the best available
approaches and/or techniques.

b) What do you mean by pure and mixed strategies in game theory?

Sol. Pure Strategy: It is the decision rule which always select a particular course of action from the
available strategies.

Mixed Strategy: It is the decision rule which always select a course of action for each play in accordance
with some probability distribution.

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Therefore, Pure strategies are the actual strategies that players have available to choose from when
playing a matrix game. In a simultaneous move (matrix) game, sometimes players can benefit from
randomly choosing one or the other of their pure strategies. A mixed strategy is the decision to play
each of the pure strategies with some specific probability.

A pure strategy problem always have a ‘saddle point’ while mixed strategy does not have a ‘saddle
point’.

Eg. This game has a saddle point NP (2), shows that this game is pure strategy game.

Player B

Player A P Q

L -3 3

M -2 4

N 2 3

c) What is the use of dummy activity in network diagram?

Sol. An artificial activity with zero time duration that only shows a precedence relationship among
activities, are called dummy activity. A dummy activity is used when two or more activities have same
initial and terminal events. The dummy activity does not consume time or resource. Dummy activity
usually shown by arrows with dashed lines.

Dummy activities are also very useful in establishing proper logical relationship in the network which
cannot, otherwise be adequately represented.

Dummy are of various type:

 Identity dummy
 Logical dummy
 Redundant dummy

d) Convert the LPP into dual.

Max. Z = 5 x1 + 3 x 2
Subject to: 5 x1 + 2 x2 ≤ 70
3 x1 + 5 x2 ≤ 15
x1, x2 ≥ 0
Sol.

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Min. W = 70 x1 + 15 x2
Subject to: 5 x1 + 3 x2 ≥ 5
2 x1 + 5 x 2 ≥ 3
x1, x2 ≥ 0

d) Find the value of the game from given pay off:

H T

H 10 -3

T -3 0

Sol. Using the following analytical formula:

 x= (a22-a21)/{(a11+a22)-(a12+a21)}

 Y= (a22-a12)/{(a11+a22)-(a12+a21)}

 V={(a11a22)-(a12a21)}/{(a11+a22)-(a12+a21)}

The optimal Strategy for Player A (3/16, 13/16)

The optimal Strategy for Player B (3/16, 13/16)

Value of the game (V) = -9/16, favor player B.

SECTION – B

2. a) Solve the following LPP:

Minimize: Z = 5 x1 + 6 x 2
Subject to: 2 x1 + 5 x2 ≥ 1500
3 x1 + x2 ≥ 1200
x1, x2 ≥ 0
Sol.

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2. b)Obtain an optional basic feasible solution to the following transportation problem:

From To W1 W2 W3 W4 Capacity

F1 19 30 50 12 7

F2 70 30 40 60 10

F3 40 10 60 20 18

Requirement 5 8 7 15
Sol.

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2. c) Obtain the optimal strategies for both persons and the value of the game for two-person zero-
sum game whose pay off matrix is as follows:

Player A and B B1 B2
A1 1 -3
A2 3 5
A3 -1 6
A4 4 1
A5 2 2
A6 -5 0
Sol. Using graphical method: When player B having two strategy and player A is having more than two
then we find the “lowest point of the highest boundary”.

SECTION – C

3. a)

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3. a) Explain the brief applications of Operations Research in Management.

Sol. The basic tools of operations research are Linear Programming Problem, probability theory, Monte
Carlo methods, stochastic processes, queuing models, transportation models, Assignment Model,
network models, game theory, linear and nonlinear programming, dynamic programming, Markov
decision processes, input-output analysis, choice modeling, econometric modeling, and other
mathematical techniques and algorithms. The ultimate goal is to create a mathematical model that
simulates real-world processes and systems so that optimal solutions can be found. Computer science
technologies and software development capabilities are often critical components in successful
operations research projects.

 Distribution system optimization. What is the optimal number of warehouses, trucks and
routes to minimize out-of-stocks, or minimize distribution costs or maximize delivery speeds?
Where should the warehouses be located? What are the most efficient delivery routes? What
size should the trucks be? How should the products be packaged and palletized for most
efficient shipping?

 Retail site selection optimization. Which markets offer the greatest potential for new retail
outlets? What store density maximizes sales revenue or profits? What’s the interaction between
advertising investments and number of retail units? What sections of a metropolitan area offer
the greatest potential for new retail units? What specific retail locations will yield the greatest
return on investment? What deployment of retail units minimizes supply chain and distribution
costs?

 Store design optimization. What type of store design will maximize consumer visits, time spent
in store, or sales? What elements of store design are most important to consumers, and what
arrangements of these elements are optimal? How should store design vary to maximize appeal
to a particular demographic target or for a given location? What product mix corresponds to and
supports the optimal store design?

 Store merchandise optimization. What is the optimal mix of merchandise in a given store to
maximize sales or profits? How should this optimal mix vary across different types of geographic
areas and demographic groups? How should this product mix vary throughout the business
cycle? What are the optimal marketing elements to support the optimal merchandise mix?

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  Retail category optimization. There are many categories of products within a retail store.
Retailers often strive to maximize sales within each category. What is the optimal mix of brands,
sizes, and facings to increase category sales? Will optimization of one category negatively affect
other categories? How can product categories be optimized without hurting overall store sales?

 Supply chain optimization. What’s the optimal way to manage the flow of raw materials,
components, and supplies from various vendors to the manufacturer, under conditions of
varying and uncertain demand?

 Manufacturing/Production optimization. What organization, machines, processes, and work

flows will maximize quality, minimize costs, and maximize output? Optimizing manufacturing
processes must be closely integrated with optimization of the related supply chain and
distribution system.

 Network optimization. How should airports be designed to handle luggage and passenger flow?
How should traffic lights be organized and timed to maximize traffic flow? What is the optimal
design of an electrical grid or a communications network?

 Transportation optimization. What route structure minimizes the number of trucks, railcars, or
school buses needed to achieve a certain service threshold or minimizes waiting times? Which
common carriers provide the most efficient distribution services for a particular business? How
should these transportation solutions vary as conditions change (weather, time of day, traffic
density, etc.)?

 Scheduling optimization. What type of schedule or scheduling system will yield the greatest
revenue, minimize costs, reduce delivery times, or meet other objectives? How should
scheduling change as conditions and the business environment change?

 Strategy optimization. What markets, technologies, systems and processes, products and
services, and positioning and messages will achieve the greatest long-term success for a given
brand, business unit, or corporation? That is, what is the optimal business model for a given
company in a given industry?

 Trading and markets optimization. Some problems can be addressed via artificial markets (e.g.,
“cap and trade”) wherein interested parties bid against each other and trade with each other.
What is the optimal way to build such a market, and how can the results be evaluated and
understood?

3. b) The cost of a machine is Rs 6100 and its scrap value is Rs 100. The maintenance costs are found
from experience to be:

Year 1 2 3 4 5 6 7 8
Cost (Rs) 100 250 400 600 900 1200 1600 2000
At what year is the replacement due?

Sol.

Year 1 2 3 4 5 6 7 8
Cost (Rs) 100 250 400 600 900 1200 1600 2000

Cum 100 350 750 1350 2250 3450 5050 7050

C-S 6000 6000 6000 6000 6000 6000 6000 6000

T (n) 6100 6350 6750 7350 8250 9450 11050 13050

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 A (n) 6100 3175 2250 1837.5 1650 1575 1578.57 1631.25

Machine should replace every six years.

4. a) i. Explain the transportation problem (initial) with suitable example.

Sol. It is special type of LPP and can be described as follows:

Suppose that the factories Fi (i=1,2…m) called the origin or source produce non-negative quantities ai
(i=1,2…m) of a product and the destination Wj required the non-negative quantities bj (j=1,2…n) of the
same product at other n places, called destination, such that the total quantity produced is equal to the
total quantity required

Σai = Σbj

Also suppose that Cij is the cost of transportation of a unit from ith source to jth destination. Then the
problem is to determine Xij, the quantity transported from ith source to jth destination in such a way
that the total transportation cost

ΣΣ Cij. Xij is minimum

The initial basic feasible solution of a transportation problem can be obtained by the following methods:

 North-West Corner Rule (NWC)

 Least Cost Method (LCM)

 Vogel’s Approximation Method (VAM)

After Obtaining the initial basic feasible solution the next step is to test whether the solution is optimal
or not. The method which is used for this purpose is called MODI method. It is based on the concept of
dual variable that are used to evaluate empty cells & their opportunity cost which indicates that the
solution is optimal or not.

4. a) ii. Define duality with suitable example.

Sol. Corresponding to every LPP, there is another LPP. The given problem is known as primal & the other
related problem is known as dual. The solution of primal & the solution of dual are same, but the
objective is to minimize the complex calculation.

In many situations dual offers a big computational advantage, like if primal is of min type & having 3
Variables & 7 Constraints, therefore the Dual having 7 Variables & 3 Constraints, the calculation is
comparatively easier.

Dual also help us to understand few more information about the problem such as Post-Optimality
analysis. It refers to how the solution would be affected if we make some changes in the existing
problem.

Primal Max. Z = 5 x 1 + 3 x2
Subject to: 5 x1 + 2 x2 ≤ 70
3 x1 + 5 x2 ≤ 15
x1, x2 ≥ 0
Dual Min. W = 70 x1 + 15 x2
Subject to: 5 x1 + 3 x2 ≥ 5
2 x1 + 5 x 2 ≥ 3

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 x1, x2 ≥ 0

4. b) A marketing manager has 5 salesman (1,2,3,4,5) and 5 sales districts (A,B,C,D,E). Considering the
capabilities of the salesman and the nature of districts the marketing manager estimates the sales per
month (in hundred rupees) for each salesman in each district would be as follows:

A B C D E
1 32 38 40 28 40
2 40 24 28 21 36
3 41 27 33 30 37
4 22 28 41 36 36
5 29 33 40 35 39
Find the assignment of salesman of districts that will result in maximum sales.

Sol. first of all we should convert this matrix into opportunity matrix by subtracting all values from the
largest value:

Table No 1

A B C D E
1 9 3 1 13 1
2 1 17 13 20 5
3 0 14 8 11 4
4 19 13 0 5 5
5 12 8 1 6 2
Now we can solve it as minimization problem.

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Table No 2

A B C D E
1 8 2 0 12 0
2 0 16 12 19 4
3 0 14 8 11 4
4 19 13 0 5 5
5 11 7 0 5 1

Table No 3

A B C D E
1 8 0 0 7 0
2 0 14 12 14 4
3 0 12 8 6 4
4 19 11 0 0 5
5 11 5 0 0 1

Table No 4: Draw the minimum number of horizontal & vertical lines that required to cover all the zeros.
since number of lines drawn is not equal to ‘n’ then select the smallest uncovered element. Subtract this
element from all uncovered. Min element = 1. Now we can make assignment.

A B C D E
1 8 0 0 7 0
2 0 13 12 14 3
3 0 11 8 6 3
4 19 10 0 0 4
5 11 4 0 0 0
Again repeat the same procedure

A B C D E
1 8 0 0 7 0
2 0 10 9 11 0
3 0 8 5 3 0
4 19 10 0 0 4
5 11 4 0 0 0
Total Sales = 38+40+37+41+35 = 191

5. a) Provide the optimal job sequencing involving three machines M1, M2, M3 for the following:

Job J1 J2 J3 J4 J5
Machine M1 7 12 11 9 8
Machine M2 8 9 5 6 7
Machine M3 11 13 9 10 14
The entries give the time in hours on the machines.

Sol. Replace the given problem with an equivalent problem involving n jobs and 2 fictitious machines.

Job G = M1+M2 H = M2+M3

J1 15 19

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J2 21 22
J3 16 14
J4 15 16
J5 15 21
The sequence of jobs would be as follows:

J5 J1 J4 J2 J3

5. b) Two breakfast food manufacturers, ABC and XYZ are competing for an increased market share.
The payoff matrix, shown in the following table, describes the increase in market share for ABC and
decrease in market share of XYZ.

ABC \ Give Coupons Decrease Price Maintain present Increase

XYZ strategy Advertising
Give Coupons 2 -2 4 1
Decrease Price 6 1 12 3
Maintain present -3 2 0 6
strategy
Increase 2 -3 7 1
Advertising
Determine the optimal strategies for both the manufacturers and the value of the game.

Sol.

6. A project scheduling has the following characteristics:

Activity Time
1-2 4
1-3 1

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2-4 1
3-4 1
3-5 6
4-9 5
5-6 4
5-7 8
6-8 1
7-8 2
8-10 5
9-10 7
Construct the network and compute (i) critical path and its duration (ii) total float, free float and
independent float.

a) What is queuing theory and also explain queuing system?

Sol. The theory is used in situations where customer arrives at some service station for some service;
wait (if required) get the service and leave the system. This situation may occur when customer deposit
electricity bill, machine waiting for repair, aircraft waiting for take off/land, patient waiting at hospital
etc.

The capacity might be build to such a high level as it can always meet the peak demand with no queue.
But adding to capacity may be a costly affair and uneconomic after a stage. Thus the goal of queuing
models is the achievement of an economic balance between the cost of providing service and the cost
associated with the wait required for that service.

Characteristics of queuing system are

 Queue Length (Lq): The average number of customers in the queue waiting to get service.

 System Length (Ls): The average number of customers in the system.

 Waiting time in the queue (Wq): The average time that a customer has to wait in the queue to
get service.

 Total Time in the system (Ws): The average time that a customer has to wait in the system.

 Server busy Time (ρ): Time when the server is busy.

 Server Idle Time (1-ρ): The probability when server is idle.

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b) Explain Program Evaluation and Review Techniques (PERT) and expected time in PERT.

Sol. CPM is a method that uses a fixed time estimate for each activity based on historical, expert
references. CPM does not consider the time variations that may have a great impact on the completion
time of a complex project. The Program Evaluation and Review Technique (PERT) emphasizes future
probabilities in time estimates (optimistic, pessimistic, and expected time)

PERT Weighted Average (expected time) (mean) = (O+4M+P)/6

Standard Deviation (SIGMA) = (P-O)/6

Where, O – Optimistic Time, M – Most Likely, P – Pessimistic Time

Benefits of PERT

• Expected project completion time.

• Probability of completion before a specified date.

• The critical path activities that directly impact the completion time.

• The activities that have slack time and that can lend resources to critical path activities.

• Activity start and end dates.

Limitations

The following are some of PERT's weaknesses:

• The activity time estimates are somewhat subjective and depend on judgments. In cases where there
is little experience in performing an activity, the numbers may be only a guess. In other cases, if the
person or group performing the activity estimates the time there may be bias in the estimate.

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