Case Number 1.

THE CLEAN CLOTHES CORNER LAUNDRY

When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that because it was
in a good location near several high-income neighborhoods, she would automatically generate
good business if she improved the laundry's physical appearance. Thus, she initially invested a
lot of her cash reserves in remodelling the exterior and interior of the laundry. However, she
just about broke even in the year following her acquisition of the laundry, which she didn't feel
was a sufficient return, given how hard she had worked. Molly didn't realize that the dry-
cleaning business is very competitive and that success is based more on price and quality
service, including quickness of service, than on the laundry's appearance.
In order to improve her service, Molly is considering purchasing new dry-cleaning equipment,
including a pressing machine that could substantially increase the speed at which she can dry-
clean clothes and improve their appearance. The new machinery costs $16,200 installed and
can clean 40 clothes items per hour (or 320 items per day). Molly estimates her variable costs
to be $0.25 per item dry-cleaned, which will not change if she purchases the new equipment.
Her current fixed costs are $1,700 per month. She charges customers $1.10 per clothing item.
Questions:
1. What is Molly's current monthly volume?
2. If Molly purchases the new equipment, how many additional items will she have to dry-clean
each month to break even?
3. Molly estimates that with the new equipment she can increase her volume to 4,300 items
per month. What monthly profit would she realize with that level of business during the next 3
years? After 3 years?
4. Molly believes that if she doesn't buy the new equipment but lowers her price to $0.99 per
item, she will increase her business volume. If she lowers her price, what will her new break-
even volume be? If her price reduction results in a monthly volume of 3,800 items, what will
her monthly profit be?
5. Molly estimates that if she purchases the new equipment and lowers her price to $0.99 per
item, her volume will increase to about 4,700 units per month. Based on the local market, that
is the largest volume she can realistically expect. What should Molly do?
Case Number 2. THE JEWELRY STORE
A jewelry store makes necklaces and bracelets from gold and platinum. The store has 18 ounces
of gold and 20 ounces of platinum. Each necklace requires 3 ounces of gold and 2 ounces of
platinum, whereas each bracelet requires 2 ounces of gold and 4 ounces of platinum. The
demand for bracelets is no more than four. A necklace earns $300 in profit and a bracelet,
$400. The store wants to determine the number of necklaces and bracelets to make in order to
maximize profit.
Questions:
1. Formulate a linear programming model for this problem.
2. Explain the effect on the optimal solution of increasing the profit on a bracelet from
$400 to $600. What will be the effect of changing the platinum requirement for a
necklace from 2 ounces to 3 ounces?
3. The maximum demand for bracelets is four. If the store produces the optimal number of
bracelets and necklaces, will the maximum demand for bracelets be met? If not, by how
much will it be missed?
4. What profit for a necklace would result in no bracelets being produced, and what would
be the optimal solution for this profit?