LUNAR INTERNATIONAL COLLEGE

SCHOOL OF BUSINESS DEPARTMENT OF

BUSINESS ADMINISTRATION
Operation Research (MBA)
Individual Assignment (20%)

Submission date :

Prepared by: -

Aster Shiferaw asmare ID: - GSR/0311/13

Submitted to: -

AUGUEST, 2021 G.C

Addis Ababa, Ethiopia

Problem 1: A farmer plans to mix two types of food to make a mix of low cost feed
for the animals in his farm. A bag of food A costs $10 and contains 40 units of
proteins, 20 units of minerals and 10 units of vitamins. A bag of food B costs $12
and contains 30 units of proteins, 20 units of minerals and 30 units of vitamins. How
many bags of food A and B should the consumed by the animals each day in order to
meet the minimum daily requirements of 150 units of proteins, 90 units of minerals
and 60 units of vitamins at a minimum cost?

A. Formulate the problem in to linear programming problem model

B. Use graphical approach to find the solution

Answer
A. Assign decision variables
Let’s X = Bag of food A and
Y = Bag of food B

Proteins Minerals Vitamins Cost

Bag of food A 40 20 10 10
Bag of food B 30 20 30 12

150 90 60

Cmin = 10x + 12Y

St 40X + 30Y ≥ 150
20X + 20Y ≥ 90
10X + 30Y ≥ 60
X and Y ≥0
B. Changing inequalities to equality use equal sign to all constraints
Cmin = 10X + 12Y
40X + 30Y = 150
20X + 20Y = 90
10X + 30Y =60
X and Y ≥ 0

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Then, find feasible area
Constraint 1: - 40X +30Y = 150
Let’s X =0, Y = 5 and let’s Y = 0, X = 3.75 === (X, Y) ==== (3.75, 5)
Constraint 2: - 20X + 20Y = 90
Let’s X = 0, Y = 4.5 and Y = 0, X = 4.5 ==== (X, Y) ==== (4.5, 4.5)
Constraint 3 10X + 30Y = 60
Let’s X = 0, Y = 2 and Let’s Y = 0, X = 6 ====== (X, Y) ==== (6, 2)

Corners coordinates C min = 10X + 12Y

A (6,0) 60
B (4,1) 52
C (1.5,3) 51
D (0,5) 60
The minimum cost values of the above problem is point of C where X = 1.5 and
Y = 3 are most favorable values.

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Problem 2: A small business enterprise makes dresses and trousers. To make a dress
requires 2 hours of cutting and 2 hours of sewing. To make some trousers requires 1
hour of cutting and 3 hours of sewing. The profit on a dress is 40 birr and on a
trouser 50 birr. The business has a maximum of 32 hours of cutting time and 48
hours of sewing time to operate per week.

Required:

A. Define the decision variables

B. Write down the constraints in terms of the variables.
C. Write down the Objective Function in terms of the variables.
D. Write down the standard form of the problem
E. Determine how many dresses and trousers should be made to maximize profit
and what the maximum profit is. Using simplex method

Answer
A. Decision variables
Cutting Sewing Profit
Dresses 2 2 40
Trousers 1 3 50

32 48

X = number of Dresses to produce maximizing profit

Y = number of Trousers to produce maximizing profit
Z max = 40X + 50Y
St 2X + Y ≤ 32
2X + 3Y ≤ 48
X and Y ≥ 0

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 Changing inequality to equality question, I have to add Slack variables to
objective function and constraints.
Z max = 40X + 50Y +0S1 +0S2
St 2X + Y + S1 = 32
2X + 3Y + S2 = 48
X, Y, S1 and S2 ≥ 0

Find optimum solution using simplex method

Table 1

Then, after table 1 shows, identify entering variable, leaving variables and key
values. Entering variable is Y column. Because it has highest co-efficient from
constraints. Leavening variable is S2 row. Because divided the solution column
by the entering variable. Key values is 3 because key values mean the
intersection of entering and leaving variables
New Y = S2/key value = (2 3 0 1 48)/3
New row of Y = (2/3 1 0 1/3 16) **
New S1 = S1 -1(2/3 1 0 1/3 16)
= S1- (2/3 1 0 1/3 16)
= (2 1 1 0 32) - (2/3 1 0 1/3 16)
= (4/3 0 1 -1/3 16) **

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New Zj = Zj – 50(2/3 1 0 1/3 16)
= Zj – (100/3 50 0 50/3 800)
= (40 50 0 0) - (100/3 50 0 50/3 800)
= (20/3 0 0 -50/3 800) **

Table 2

Then, after table 1 appear, identify entering variable, leaving variables and key
values. Entering variable is X column. Because it has highest co-efficient from
constraints. Leavening variable is S1 row. Because divided the solution column
by the entering variable. Key values is 4/3. Key value means the intersection of
entering and leaving variables.
New X = S1/4/3 = S1*3/4
= (4/3 0 1 -1/3 16) *3/4
= (1 0 ¾ -1/4 12) **
New Y = Y - 2/3(1 0 ¾ -1/4 12)
= Y – (2/3 0 1/6 -1/6 8)
= (2/3 1 0 1/3 16) - (2/3 0 1/6 -1/6 8)
= (0 1 -1/6 1/3 8) **

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New Zj= Zj – 20/3(1 0 ¾ -1/4 12)
= Zj – (20/3 0 5 -5/3 80)
= (20/3 0 0 -50/3 800)- (20/3 0 5 -5/3 80)
= (0 0 -5 -15 880) **

Table 3

NB. Now, all the values of Cj-Zj being zero or negative, suggesting that the
solution is optimal and Z = 880 for X (No of dresses to produce) = 12 and Y (No
of trousers to produce) = 8.

Problem 3: Kebede & co. is considering investing some money that they inherited.
The following payoff table gives the profits that would be realized during the next
year for each of three investment alternatives the co. is considering:

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 a) What decision should be done by Maximax?

 From the three maximum profit $80,000 $30,000 and $23,000, the
maximum is $80,000, the corresponding decision is to invest stock
market.

b) What decision should be done by Maximin?

 The maxmin of the above three payoffs is $23,000, thus the

decision arrived at would be invest CDs

c) What decision should be done by Criterion of realism? Assume that

coefficient of realism, α, to be 0.80.

Decision State of nature

Variables
Good Poor economy
economy

Stock market 80,000 -20,000

Bonds 30,000 20,000

CDs 23,000 23,000

Let’s a = 0.8(coefficient of good economy) ═1-a = 1-0.8 = 0.2

(coefficient of good economy).

Stock market = 80,000 * 0.8 +(-20,000 * 0.2) = 64,000- 4000 = 60,000

Bonds = 30,000 * 0.8 + 20,000 * 0.2 = 37,500 +4,000 = 41,500

CDs = 23,000 * 0.8 + 23,000 * 0.2 = 18,400 + 4,600 = 23,000

The criterion of realism selection alternatives corresponding to the maximum

weighted values, which is $60,000. The investing decision would be stock market

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 d) What decision should be done by Equally likely?

Decision State of nature

Variables
Good Poor economy
economy

Stock market 80,000 -20,000

Bonds 30,000 20,000

CDs 23,000 23,000

Coefficient is equal to 0.5

Stock market = 80,000* 0.5 – 20,000* 0.5 = 40,000 -10,000 = 30,000

Bonds = 30,000* 0.5 + 20,000* 0.5 = 15,000 + 10,000 = 25,000

CDs = 23,000*0.5 + 23,000* 0.5 = 11,500 + 11,500 = 23,000

As equality likely, select the decision that has the maximum weighted values.
Which is $30,000. The investor decision would be to invest the stock market.

e) What decision should be done by Minimax regret?

Good economy Poor economy

80,000 -20,000

30,000 20,000

23,000 23,000

The maximum payoff under good economy conditions is $80,000 and the
maximum pay off under good economy conditions is $23,000. All other payoffs
under the respective nature of state are subtracted from these amounts.

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Good economy Poor economy

80,000 - 80,000 = 0 23,000 – (-20,000) = 43,000

80,000 - 30,000 = 50,000 23,000 - 20,000 = 3,000

80,000 - 23,000 = 57,000 23,000 - 23,000 0

According to the min max regret criterion, the maximum regret for each
decision must be determined.

Decision State of nature

Variables
Good economy Poor economy

Stock market 0 43,000

Bonds 50,000 3,000

CDs 57,000 0

The minimum regret value is $50,000. Hence, the decision should be to invest
bonds rather than others.

f) What decision should be done by EMV?

Decision State of nature

Variables
Good Poor economy
economy

Stock market 80,000 -20,000

Bonds 30,000 20,000

CDs 23,000 23,000

The probability of event happing to all state of nature is 0.5. then,

EMV stock market = 80,000(0.5) – 20,000(0.5) = 40,000 – 10,000 = 30,000

Bonds = 30,000(0.5) + 20,000(0.5) = 15,000 + 10,000 = 25,000

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CDs = 23,000(0.5) + 23,000(0.5) 11,500 + 11,500 = 23,000

The best decision is the greatest expected values. So, the greatest values of the
above is 25,000. So the decision is stock market.

Problem 4: John, president of Hard-rock Concrete Company, has plants in three

locations and is currently working on three major construction projects, located at
different sites. The shipping cost per truckload of concrete, plant capacities, and
project requirements are provided in the following table.

A. Formulate an initial feasible solution to Hardrock’s transportation problem

using the northwest corner rule.
First, develop LPP.
Min C = $10X1A + 4X1B + 11X1C + 12X2A + 5X2B + 8X2C + 9X3A + 7X3B + 6X3C

X1A + X1B + X1C = 70

X2A + X2B + X2C = 50
X3A + X3B + X3C = 30

X1A + X2A + X3A = 40

X1B + X2B + X3B = 50
X1C + X2C + X3C = 60
Xij ≥ 0 i =1, 2 and 3, j = A, B and C

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From\To A B C SS
1 40 10 30 4 11 70
2 12 20 5 30 8 50
3 9 7 30 6 30
DD 40 50 60 150

Min C = $10X1A + 4X1B + 11X1C + 12X2A + 5X2B + 8X2C + 9X3A + 7X3B + 6X3C
Min C = 10(40) + 4(30) + 5(20) + 8(30) + 6(30)
= 400 + 120 + 100 + 240 + 180
= 1040

B. Find the optimal solution using stepping-stone method

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In this case, there is no new routes to beneficiary the company decreasing
transportation cost. The minimum transportation cost is $1040

Min TC = $10X1A + 4X1B + 11X1C + 12X2A + 5X2B + 8X2C + 9X3A + 7X3B + 6X3C
Min TC = 10(40) + 4(30) + 5(20) + 8(30) + 6(30)
= 400 + 120 + 100 + 240 + 180 = 1040

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Problem 5: To establish a driver educational school, organizers must decide how
many cars, instructors, and students to have. Costs are estimated as follows. Annual
fixed costs to operate the school are 30000 birr. The annual cost per car is 3000 birr.
The cost per instructor is 11000 birr and one instructor in needed for each car.
Tuition for each student is 350 birr. Let X be the number of cars and Y be the
number of students.
Let X = number of cars and

Y = number of students

Fixed cost = 30,000

VC x = 3000, Annual cost per car

VC x = 11,000, one car for one instructor

P y = 350, Tuition fee for each student

A. Write an expression for total cost.

Total cost = Fixed cost + (cost per car +cost per instructor)

Total cost = 30,000+(3000x+11000x)

= 30,000+14000x

B. Write an expression for total revenue.

Total Revenue =number of students * amount paid by each student

= 350y

C. Write an expression for total profit.

Total profit = Total revenue – Total cost

= 350y- (30,000 + 14,000x)

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D. The school offers the course eight times each year. Each time the course
is offered, there are two sessions. If the decided to operate five cars, and if
four students can be assigned to each car, will they break-even?

Yes, it will break even.

To break even, the total profit should be $0 or more. In a scenario

where the school utilizes 5 cars with 4 students assigned to each car,
16 times a year (eight times with two sessions each) then the total
number students will be 20. Therefore,

profit = 350(320) - (30,000 + 14000(5))

= $112,000 - $100,000

= $12000

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