Rift Valley University

MBA-Program
Home Take- Final Examination for Quantitative analysis for Decision Making

)
\

Name: Husen Mohammed Bushura Section: A Id. No: New

 Students in Section A & C to submit their answer sheet to Dr. Terefe Z.

through email address: terefezeleke@gmail.com

1
Questions:

1. A farmer is attempting to decide which of three crops he should plant on his 100 acre farm.
The profit from each crop is strongly dependent on the rainfall during the growing season. He
has categorized the amount of the rainfall as substantial, moderate or light. He estimates his
profit for each crop as shown in the table below (5 points):

Estimated Profit (Br) depending on

Types of crop rainfall
Substantial Moderat Light
e
Crop A 7,000 3,500 1,000
Crop B 2,500 3,500 4,000
Crop C 4,000 4,000 3,000

Based on the weather in previous seasons and the current projection for the coming season, he
estimates the probability of substantial rainfall as 0.2, that of moderate rainfall as 0.3 and that of
light rainfall as 0.5.

a. Compute the expected value for each alternative crop type and select the best one.

Solution

Estimated Profit (Br) depending on

Types of crop rainfall
Substantial Moderat Light
e
Crop A 0.70 0.30 0.10
Crop B 0.25 0.60 0.20
Crop C 0.05 0.10 0.70
Let i be the state of nature (i=1,2,3) representing ‘substantial rainfall ‘ ,’moderate
rainfall ‘, and light rainfall respectively and j be te course of action
(j=1,2,3)representing crop A, crop B ,and crop C respectively.

Compute of expected value

State of nature prior probability conditional profit (RS) Expected profit value
Course of action course of action
J1 j2 j3 j1 j2 j3

i1 0.20 7,000 2,500 4,000 1,400 500 800

i2 0.30 3,500 3,500 4,000 1,050 1,050 1,200

i3 0.50 1,000 4,000 3,000 500 2,000 1,500

2
 2,950 3,550 3,500
Therefore, in accordance with the EMV criterion, the crop B should be chosen, because the
highest EMV.

b. Develop the opportunity loss table and compute the expected opportunity loss for
each decision and select the best one.

Solution (B)

For each outcome, the revised probabilities are now used to recalculate the EMVs, given
the additional information supplied by that outcome.

Forecast outcome

Nature (i) B1 B2 B3

PRO COL EOL PRO COL EOL PRO COL EOL

I1 0.50 0 0 0.151 500 75 0.025 3000 60

I2 0.321 4500 1,440 0.303 500 275 0.076 0 0

I3 0.178 3,000 540 0.030 0 0 0.897 1,000 900

Posterior of EOL 1,980 350 960

Outcome probability expected opportunity loss expected value of sample information

(B) P EOL EVSi

B1 0.28 1980 554.4

B2 0.33 350 115.5

B3 0.39 960 374.4

1,044.30

The expected opportunity loss is =1,044.30

So that the crop B should be the best alternative.

3
2. Edgar Allan Melville is a successful novelist who is negotiating a contract for a new novel
with his publisher, McMillan publisher Inc. The novelist’s contract strategies encompass
various proposals for royalties, movie rights, advance and the like. The following payoff
table shows that financial gains for the novelist from each contract strategy in thousands
Birr (10 Points).
McMillan Publisher strategies
Novelist strategies Royalties Movie right Advance
Royalties $80,000 $120,000 $90,000
Movie right $130,000 $90,000 $80,000
Advance $90,000 $140,000 $100,000
a. Does this payoff table contain any dominant strategy? If yes, determine it.
Solution : A, there is no dominat .

b. Determine the optimal strategy for the Novelist and the Publisher by showing gain and
loss for each..
Solution

adivance strategy for publisher is dominated by royalties and move right.

royalties stategy for novelist is dominated by move right and advance stategies by elimination
Novelist strategies Mc Millan pulisher stategy    
Royalties Royalties move right advance
move right $130,000 $90,000  
advance $90,000 $140,000  
       

using maximum for Mc Millan publisher the maximum value for royalties=130,000 and for
movie right =140,000
the maximum value =140,000
Thus the optimal strategy for publisher is movie right.
for the novelist optimal strategy is advance
there are maximum gain is $140,000

4
3. Sony, a television company, has three major departments for the manufacture of its two
models, A and B. The monthly capacities are given as follows (10 points):

Per Unit Time Requirement (hours)

Model A Model B Hours Available this
Month
Department I 4.0 2.0 1,600
Department II 2.5 1.0 1,200
Department III 4.5 1.5 1,600

The marginal profit per unit from model A is Birr 400 and that of model B is Birr 100 per
unit. By assuming that the company can sell any quantity of either product due to favorable
market conditions, determine the optimum output for both the models, the highest possible
profit for this month in the three departments.
Required:
a) Formulate the model for LPM
Per Unit Time Requirement (hours)
Department Model A Model B Hours Available this
Month
Department I 4.0 2.0 1,600
Department II 2.5 1.0 1,200
Department III 4.5 1.5 1,600

Solution:
Let
Number of Model (A) =X
Number of Model (B) =Y
4X+2Y=1,600=divided by two=4x/2+2y/2=1,600/2=2x+y=800
2.5X+1Y=1,200=times by two=2x5/2x+2y=2x1200=5x+2y=2,400
4.5x+1.5y=1,600=times by two=2x4.5x+2x1.5y=2x1, 600=9x+3y=3,200
Formulate LPM
Maximize Z = 400X1 + 100X2
Subject to 2x + y < 800
5X + y< 2400
9X + 3y < 3200

5
 X,y>0

b) Solve the LPM using graphical method and interpret the optimal solution.

1200 (0,1200)

1000 (0,1066)

(0,800)

500 (267,267)
Feasible region
(355, 0) (480, 0)
0 200 400 (400, 0) 600
600

Using simultaneous equation (equation 1 and 3)

-3(4X1 + 2X2 = 1600) 4X1 + 2X2 = 1600
4(4.5X1 + 1.5X2 = 1600)4*267 + 2X2 = 1600
6X1 = 1600 2X2 = 533
X1= 267 X2 = 267

Corners Z = 400X1 + 100X2

(0,0) 0
(0,800) 80,000
(267,267) 133,500
(355,0) 142,000

6
Therefore, the Maximize profit Z= 142,000, when x1 = 355 and x2 = 0. So that produce model A
355 and Model B 0 which will allow maximizing profit to 142,000.
4. A manufacturing firm has discontinued production of a certain unprofitable product line. This
has created considerable excess production capacity. Management is considering devoting this
excess capacity to one or more of three products: product 1, 2 and 3. The available capacity
on the machines which might limit output is summarized in the following table (12 Points):
Machine Type Available Time
(in Machine- hours per Week)
Milling Machine 250
Lather 150
Grinder 50

The number of machine-hour required for each unit of the respective product is as follows

Machine Type Productivity in Machine-hours per Unit)

Product 1 Product 2 Product 3
Milling Machine 8 2 3
Lathe 4 3 -
Grinder 2 - 1

The profit per unit would be Birr 20, Birr 6, and Birr 4 respectively for product 1, 2 and 3. Find
how much of each product the firm should produce in order to maximize profit.
a. Formulate the model for LP
Solution

Objective function is to maximize profits

Maximize Z = 20X1 + 6X2 + 4X3

Subject to 8X1 + 2X2 + 3X3 < 250
4X1 + 3X2< 150
2X1 + X3 < 50
X1, X2,X3>0

7
 b.Solve the LPM using simplex algorithm.

a. X1, X2,X3>0
Step 1
20X1 - 6X2 - 4X3 = 0
8X1 + 2X2 + 3X3 + S1 = 250
4X1 + 3X2 + S2= 150
2X1 + X3 + S3 = 50
Step 2.(Table 1)
Basic X1 X2 X3 S1 S2 S3 RHS
variable
S1 8 2 3 1 0 0 250
S2 4 3 0 0 1 0 150
S3 2 0 1 0 0 1 50
Zj 0 0 0 0 0 0
Zj-Cj -20 -6 -4 0 0 0

Table 2
Basic X1 X2 X3 S1 S2 S3 RHS
variable
S1 0 2 -1 1 0 -4 50
S2 0 3 -2 0 1 -2 50
20X1 1 0 ½ 0 0 ½ 25
Zj 20 0 10 0 0 10
Zj-Cj 0 -6 -4 0 0 10

Table 3
Basic X1 X2 X3 S1 S2 S3 RHS
variable
S1 0 0 1/3 1 -2/3 4/3 16.67
6X2 0 1 -2/3 0 1/3 -2/3 16.67

8
 20X1 1 0 ½ 0 0 ½ 25
Zj 20 6 6 0 2 6
Zj-Cj 0 0 2 0 2 6

c.solution
This solution is optimal; since there is no negative solution in the last row: basic variables
are X1 = 25, X2 = 16.667 and S1 = 16.667; the non-basic variables are S2 = S3 = 0,
Max Z = 20X1 + 6X2 + 4X3
= 20*25 + 6*16.667 + 4*0
= 600

5. Determine an initial basic feasible solution to the following transportation problem by using
(a) the least cost method,
Transportation tableau 1
Source Destinations Supply
D1 D2 D3 D4
S1 20 1 2 10 1 4 30
S2 3 20 3 20 2 10 1 50
S3 4 20 2 5 9 20
Demand 20 40 30 10

Initial solution can be found by least cost method as follows

Shipment:
From S1 to D1=20 units; D3=10 units
From S2 to D2=20 units; D3=30 units; D4=10 units
From S3 to D2=20 units.
Total Shipment cost=20x1+10x1+20x3+20x2+10x1+20x2
=20+10+60+40+10+40
=180 Birr

(b) Vogel’s approximation method

Source Destinations Supply

D1 D2 D3 D4
S1 20 1 2 10 1 4 30
S2 3 20 3 20 2 10 1 50
S3 4 20 2 5 9 20
Demand 20 40 30 10

9
Solution: by calculating penalty

4-1=3, 2-1=1, 4-2=2, 3-1=2, 3-2=1, 2-1=1, 4-1=3

Table 1
  D1 D2 D3 D4 Supply
S1 1 2 1 4 30
1

S2 3 3 2 10 40
S3 4 2 5 9 20

Demand 20 40 30 10  

Table 2
D1 D2 D3 D4 Supply
S1 1 2 1 4 30
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 30 10

Table 3
D1 D2 D3 D4 Supply
1

S1 20 2 1 4 10
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 30 10

10
 Table 4
D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 20 10

Table 5
  D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
3 1

S2 3 20 2 10 20
2

S3 4 20 5 9 20

Demand 20 20 20 10  

Table 6
D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
3 2 1

S2 3 20 20 10 20
2

S3 4 20 5 9 20
Demand 20 20 20 10

Total Minimum Cost

11
 (10 × 1 + 20 × 2 + 20 × 1 + 10 × 1 + 20 × 3 + 20 × 2)

=180 Birr

c). Based on the initial basic feasible solution, apply Modified Distribution method (MODI)
to determine the optimum minimum total transportation cost for the shipment (13Points).

Source Destinations Supply

D1 D2 D3 D4
S1 1 2 1 4 30
S2 3 3 2 1 50
S3 4 2 5 9 20
Demand 20 40 30 10

Table 1
Sup
D1 D2 D3 D4 ply
S1 1 2 1 4 30
1

S2 3 3 2 10 40
S3 4 2 5 9 20

Demand 20 40 30 10

Table 2
D1 D2 D3 D4 Supply
S1 1 2 1 4 30
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 30 10

12
 Table 3
D1 D2 D3 D4 Supply
1

S1 20 2 1 4 10
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 30 10

Table 4
D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
1

S2 3 3 2 10 40
2

S3 4 20 5 9 20

Demand 20 20 20 10

Table 5
  D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
3 1

S2 3 20 2 10 20
2

S3 4 20 5 9 20

Demand 20 20 20 10  

13
 Table 6
D1 D2 D3 D4 Supply
1 1

S1 20 2 10 4 10
3 2 1

S2 3 20 20 10 20
2

S3 4 20 5 9 20

Demand 20 20 20 10

Total Minimum Cost

=( 1 × 20 + 2 × 10 + 3 × 10 + 2 × 30 + 1 × 10 + 2 × 20)

=180 Birr

Good Luck!!

14