Unit No: III

Course Outcome-03: After studying this course, the student will be able to solve to make right
decisions in operations management using game theory, sequencing techniques and problems of
inventory model.
Syllabus:
Game Theory- Introduction, Minimax and Maximin, Criteria and Optimal Strategy,
Solution of games with Saddle Points, Games without Saddle Points, 2x2 games, Dominance
Principle, mx2 & 2xn games. (No Graphical Method).
Sequencing Model – Introduction, Sequencing Model: n job two machines problem, n
job 3 machines problem, 2 jobs m machine problem.
Inventory Model: Inventory control costs, analysis of inventory models with deterministic
demand (Single Product), ABC analysis.

Game Theory

Game is defined as an activity between two or more persons involving in activities by each
person according to a set rules, at the end of which each person receives some benefits or suffer losses.
Game theory is a type of decision theory in which one’s choice of action is determined after taking into
account all possible alternatives available to an opponent playing the same game.
Pure Strategy: If a player knows exactly what the other player is going to do, a deterministic situation is
obtained and objective function is to maximize the gain. Therefore pure strategy is a decision rule
always to select a particular course of action.
Mixed strategy: If a player is guessing as to which activity is to be selected by the other on any particular
occasion, a probabilistic situation is obtained and objective function is to maximize the expected gain.
Saddle Point: A saddle point of a payoff matrix is the position of such an element in the payoff matrix
which is minimum in its row and maximum in its column.
If Maximin=Minimax=0 Game is fair and strictly determinable
If Maximin=Minimax≠0 Game is not fair and strictly determinable
If Maximin≠Minimax Game is neither fair nor strictly determinable

Arithmatic method
If there is no saddle point for 2x2 matrix a b
c d
1. Subtract the two digits in column 1 and write under column 2, f=b-d e=a-c
ignoring sign
2. Subtract the two digits in column 2 and write under column 1,
ignoring sign
3. Similarly proceed for rows.

1. For the game with payoff matrix determine the optimal strategies for players A and B. Also
determine the value of game. Is this game (i) fair? (ii) Strictly determinable?

1.1 Player B
Player A 1.2 Player B
B1 B2 B3 Player A
A1 -1 2 -2 I II III
A2 6 4 -6 I -3 -2 -3
II 2 0 2
III 5 -2 -4
2. The payoff matrix of a game is given. Find the solution of the game to the A and B.

2.1 Player B 2.2 Player B

Player A
I II III IV V I II III
I -2 0 0 5 3 I -2 15 -2

Player A
II 3 2 1 2 2 II -5 -6 -4
III -4 -3 0 -2 6 III -5 20 -8
IV 5 3 -4 2 -4

3. Player A can choose his strategies from (A1, A2, A3) only, while B can choose from the set (B1, B2)
only. The rules of the game states that Strategy pair selected Payment to be made
the payments should be made (A1, B1) Player A pays Re.1 to player B
accordance with the selection of (A1, B2) Player B pays Rs.6 to player A
strategies: (A2, B1) Player B pays Rs.2 to player A
(A2, B2) Player B pays Rs.4 to player A
4. Find the range of p and q that will render (A3, B1) Player A pays Rs.2 to player B
(A3, B2) Player A pays Rs.6 to player B
the entry (2,2) a saddle point for the
game:
5. For what value of λ, the game with following pay-off matrix is strictly determinable?

4 Player B 5 Player B
Player A Player A
B1 B2 B3 B1 B2 B3
A1 2 4 5 A1 λ 6 2
A2 10 7 q A2 -1 λ -7
A3 4 p 6 A3 -2 4 λ

6. A company management and the labor union are negotiating a new three year settlement. Each has
these has four strategies: I,II,III,IV. The costs to the
Union Company Strategies
company are given for every pair of strategy choice. Strategies I II III IV
What strategy will the two sides adopt? Also I 20 15 12 35
determine the value of the game. II 25 14 8 10
III 40 2 10 5
IV -5 4 11 0
7. A company is currently involved in negotiating with its
Company Union Strategies
union on the upcoming wage contract. Positive signs
Strategies U1 U2 U3 U4
in the table represent wage increase while negative C1 0.25 0.27 0.35 -0.02
sign represents wage reduction. What are the optimal C2 0.20 0.06 0.08 0.08
strategies for the company as well as the union? What C3 0.14 0.12 0.05 0.03
is the game value? C4 0.3 0.14 0.19 0.00
8. Players A and B play a game in which each has three coins a 5p, 10p and a 20p. Each selects a coin
without the knowledge of the other’s choice. If the sum of the coins is an odd amount, then A win
B’s coin. But if the sum is even, then B wins A’s coin. Find the best strategy for each player and the
value of the game.
9. In a game of matching coins with two players, suppose A wins one unit of value when there are two
heads, wins nothing when there are two tails and losses 0.5 units of the value when there is one
head and one tail. Determine the payoff matrix the best strategies for each player and the value of
the game to A.
10. Solve using Dominance Principle

10.1 Q 10.2 Player B

-6 10 11 1 7 2

Player
P -1 -2 -3 6 2 7

A
-1 -2 -4 5 2 6

10.5 Q
10.3 Player B 10.4 I II III IV V VI 3 2 4 0
1 2 3 4 5 1 4 2 0 2 1 1 3 4 2 4
I 1 3 2 7 4 P
2 4 3 1 3 2 2 4 2 4 0
Player A

II 3 4 1 5 6 3 4 3 7 -5 1 2 0 4 0 8
III 6 5 7 6 5 4 4 3 -4 -1 2 2 A=(2/3,1/3)
IV 2 0 6 3 1 5 4 3 3 -2 2 2

11. Airlines operates the same air route both trying to

Player B
get as large a market as possible. Based on the Does Adv. Adv. Sp.
certain market daily gain and loss in Rs. Is shown in

Player A
Nothing Sp.rates Features
Adv.
which positive value favors airline A and negative Sp.rates 275 -50 -75
Adv. Sp.
favors airline B. Find the solution of game. Features 125 130 150
12. The labour contract between your management and the union will terminate in the near
future. A new contract must be negotiated preferably before the old one expires. You are a
member of management group charged with Company Union Strategies
selecting a strategy for them during the coming Strategies I II III IV
negotiations. After a consideration of post I 20 15 12 35
experience, the group agrees that feasible II 25 14 8 10
III 40 2 19 5
strategies for the company and union are : i) All
IV 5 4 11 0
out attack, hard aggressive bargaining ii) A
reasonably logical approach. iii) A legalistic strategy. iv) An agreeable conciliatory approach.
The pay off table is given below: Find optimal strategy for the company. Determine the
worth of your negotiation.
13. Consider the following pay off matrix for two firms. Find the best strategies for both the
firms:
Firm II
No Medium Large
Advertising Advertising Advertising
No Adv. 60 50 40
Firm I

Med. Adv. 70 70 50
Large Adv. 80 60 75

14. Solve by method of Sub game:

Player B
B1 B2 B3
Player A

A1 1 3 11
A2 8 5 2
 Sequencing Model
1. A machine operator has to
1 Job 1 2 3 4 5 6
perform two operations, turning Time for Turning (minute) 3 12 5 2 9 11
and threading, on a number of
Time for Threading (minute) 8 10 9 6 3 1
different jobs. The time required
to perform these operations (in minutes) for each job is known. Determine the order in which the jobs
should be processed in order to minimize the total required time to turn out all the jobs. Also find the
total processing time and idle times for turning and threading operations.
2. There are seven jobs, each of which 2 Job 1 2 3 4 5 6 7
has to go through the machines A Machine A 3 12 15 6 10 11 9
and B in the order of AB. Processing Machine B 8 10 10 6 12 1 3
time in hours are given as: Determine a sequence of these jobs that will minimize the total elapsed time.
Also find total elapsed time and idle time for machine A and B.
3. Six jobs go first on machine I and then
Job 1 2 3 4 5 6
over II. The order of the completion of Time of Machine A 5 9 4 7 8 6
jobs has no significance. The following Time of Machine B 7 4 8 3 9 5
table gives the machine times in hours for the six jobs and the two machines: Find the sequence of the
jobs that minimizes the total elapsed time to complete the jobs.
4. Five jobs are performed first on machine M1and then Machine/Jobs A B C D E
on machine M2 . Time in hours taken by each job on M1 5 1 9 3 10
each machine is given below. Determine the M2 2 6 7 8 4
optimum sequence of jobs and the minimum time
elapsed.
5. In a machine shop 8
Job I II III IV V VI VII VIII
different products are
M1 (Time in min.) 30 45 15 20 80 120 65 10
being manufactured, each M2 (Time in min.) 20 30 50 35 36 40 50 20
requiring time on two
machines M1 and M2 as given below: i)Decide the optimum sequence of processing of different
products in order to minimize the total manufacturing time for all the products. ii) The total minimum
elapsed time, iii) Idle time for machine M1 and M2, iv) Name the scheduling model used.
6. Find the sequence that minimizes the total time required
in performing the following jobs Job 1 2 3 4 5
on three machines in the order ABC. Processing times (in Machine A 8 10 6 7 11
hours) are given in the following table. Machine B 5 6 2 3 4
Machine C 4 9 8 6 5
7. A refrigeration company has six plants located in different parts of the city. Every year it is necessary for
each plant to be completely overhauled. The Time required by the crew (days)
overhauling is carried out in two stages A Plant P1 P2 P3 P4 P5 P6
and B, and each stage requires a crew of Crew A 12 9 10 8 10 10
work men with completely different skills. Crew B 10 7 9 14 6 8
The work on stage B can start only when stage A has been completed. The plant has to be closed for the
entire period of overhauling. The company , at present is following the schedule of the overhaul of the
six plants as given below:

(i) Determine the optimal sequence. (ii) If down time of any of the six plants costs Rs.5000 per day, idle
costs for crew A costs Rs.1500 per day and idle time of crew B costs Rs.2500 per day, which of the two
schedules, the present one or the one determined in part (i), will be more economical? What are their
respective costs?
8. A manufacturing company processes 6 different jobs on two machines A and B. Number of units of each
jobs and its processing times on A Job 1 2 3 4 5 6
and B are given in the table. Find Nos. of unit of each job 3 4 2 5 2 3
the optimal sequence, the total Processing Machine A 5 16 6 3 9 6
minimum elapsed time and idle time Machine B 8 7 11 5 7.5 14
time for either machine.
9. A machine operator has to perform
three operations: turning, threading and Job 1 2 3 4 5 6
knurling on a number of different jobs. Time for turning (Minute) 3 12 5 2 9 11
The time required to perform these Time for Threading (Minute) 8 6 4 6 3 1
operations (in minute) for each job is Time for Knurling (Minute) 13 14 9 12 8 13
known. Determine the order in which the job should be processed in order to minimize the total time
required to turn out all the jobs. Also find the idle times for the three operations.
10. There are five jobs, each of which is to be processed
through three machines A,B and C in the order ABC. Job 1 2 3 4 5
Processing times in hours are: A 3 8 7 5 4
Determine the optimum sequence for the five jobs and B 4 5 1 2 3
C 7 9 5 6 10
the minimum elapsed time. Also find the idle time for
the three machines and waiting time for the jobs.
11. Find the sequence that minimizes the total elapsed time
required to complete the following tasks. Each task is Job 1 2 3 4 5 6 7
processed in any two of the machines A, B and C in any A 12 6 5 3 5 7 6
order. B 7 8 9 8 7 8 3
C 3 4 11 5 2 8 4
12. Using graphical method, determine the optimal
sequence needed to process jobs 1 and 2 on five machines. A,B,C,D and E. For each machine find the job
which should be done first. Also calculate the total time needed to complete both the jobs:
12.1 Job 1 Sequence A B C D E 12.2 Job 1 Sequence A B C D E
Time (hrs) 1 2 3 5 1 Time (hrs) 6 8 4 12 4
Sequence C A D E B Sequence B C A D E
Job 2 Job 2
Time (hrs) 3 4 2 1 5 Time (hrs) 10 8 6 4 12

13. Two major parts P1 and P2 for a product require processing through six machine centres. The
technological sequence Part Machine Sequence C A E F D B
of the parts on six P1 Time (hrs) 2 3 4 5 6 1
machines and Part Machine Sequence B A E F C D
manufacturing times P2 Time (hrs) 3 2 5 3 2 3
on each machines are: What would be the optimal scheduling to minimize the total processing time for
these two parts? Find also the total elapsed time. For each machine specify the job that should be done
first.
14. The workshop has six machines A,B,C,D,D
and F. Two jobs have to be processed Time in hours on machine
Plant A B C D E F
through each of these machines. The
Job 1 20 30 10 10 25 15
processing time on each machine and
Job 2 10 15 30 10 20 15
technological sequence of jobs is given
below. Job 1: A-C-D-B-E-F, Job 2 : A-C-B-D-F-E
In which order should the jobs be done on each of the machines to minimize the total time required to
process the jobs? Also find the minimum elapsed time.
 Inventory Model

1. A company requires 16000 units of raw material costing Rs. 2 per unit. The cost of placing
an order is Rs. 45 and the currying costs are 10% per year per unit of the average inventory.
Determine: i) The economic order quantity, ii) cycle time, iii) total variable cost of managing
the inventory.
2. A stockist has to supply 400 units of a product every Monday to his customers. He gets the
product at Rs.50 per unit from the manufacturer. The cost of ordering and transportation from
the manufacturer is Rs.75 per order. The cost of carrying inventory is 7.5% per year of the
cost of product. Find (i) The economic lot size, (ii) The total optimal cost (including the
capital cost), (iii) The total weekly profit if the item is sold for Rs.55 per unit.
3. The production department for a company requires 3,600 kg of raw material for
manufacturing a particular item per year. It has been estimated that the cost of placing an
order is Rs.36 and the cost of carrying inventory is 25% of the investment in inventories. The
price is Rs.10 per kg. The purchase manager wishes to determine an ordering policy for raw
material.
4. An automobile manufacturer needs 50 piston per day in his assembly shop. The cost of
ordering is Rs. 700/- order. The inventory holding cost is Rs. 0.15/unit/day. If the piston cost
Rs. 160 and no shortages are permitted. i) Find optimal order quantity, ii) What is optimal
total expected system cost ? iii) Find minimum cost procurement level if lead time is 4 days.
iv) Sketch the inventory model.
5. Short Notes on:
i) ABC analysis, ii) Cost Associated with Inventory
6. What is selective inventory control? Give a detailed description of ABC analysis.
7. Obtain the optimal order quantity using the information.
Annual requirement – 1 million. Order processing cost – Order size Unit Price
Rs.28.8/order Holding cost – 20% of unit cost
0-9999 Rs.2.00
10000-19999 Rs.1.60
20000 & above Rs.1.40