Exam Review - Module 3

Problem 1
Company XOE sells two types of plastic bags: grocery shopping bags and gifts bags. Every year XOE
can produce in total 800 bags. The management team is now planning how many bags they should
produce for each type in the coming year so that the total profit can be maximized. However, because of
a new promotion plan for gift bags they also want to ensure that the production of the grocery bag cannot
exceed the gift bag by 450 units even though the profit of the grocery bag is higher.
The profit, needed amount of plastic, production time are provided as follows.

Grocery Bag Gift Bag

Profit 8 5

Needed Plastic 2 1

Production Time 3 4

The total amount of plastic and production time can not exceed 1200 units and 2400 hours.
Maximize Z = 8x1 + 5x2 (Weekly Profit)
Subjected to:
2x1 + 1x2 < 1,200 (Plastic)
3x1 + 4x2 < 2,400 (Production Time)
x1 + x2 < 800 (Total Production)
x1 - x2 < 450 (Mix)
xj > 0, j = 1, 2 (Nonnegativity)
a) What can happen if the profits (8, 5) change? Will the optimal solution remain the same or change?

If there is only one of the coefficients changed and the change is within the range of allowable increase and
allowable decrease, the optimal solution remains the same.
In this case, the change of optimal value (Z value) = the change of the coefficient * the corresponding variable
value.
b) What can happen if we change the values of (1,200, 2,400)? (i.e. RHS) Will the optimal solution remain
the same or change?

It depends on the slack value, i.e. the difference between LHS and RHS. If slack = 0, meaning that all the resource is
used up, the optimal solution would change if the RHS changes.
Otherwise, the optimal solution would not change for any RHS change giving non-zero slack value.
c) How much can we increase or decrease the RHS of the third constraint without changing the optimal
solution?

You can increase to the infinity and decrease up to 800 - 720 = 80.
***Warning: this does not necessarily correspond to the allowable increase or decrease in the table! To see this, try
to answer the same question for the 1st constraint.
Here, the allowable increase/decrease should be read together with the shadow price instead. Shadow price: the
change of optimal value (Z value) per unit increment of RHS. The shadow price applies for any RHS change within
the allowable increase/decrease range.

d) What is the change of the optimal value (Z value) if the RHS of the 1st constraint 1) decreases by 300?
2) increases by 300?

1) within the allowable decrease, so change of value = 3.4 * (-300) = -1,020

2) Outside the range (150), we only know the optimal value increase at least by 3.4 * 150 = 510.

e) How much improvement can the management team have if they decide to increase the plastic
inventory from 1,200 to 1,300 units?

1. Check shadow price, 2. Check applicable range, 3. If the change is within the range, calculate “price * change”

Problem 2
A company produces tools at two plants and sells them to three customers. The cost of producing 1,000
tools at a plant and shipping them to a customer is given in Table below:
Customer 1 Customer 2 Customer 3
Plant 1 $60 $30 $160
Plant 2 $130 $70 $170

Customers 1 and 3 pay $200 per thousand tools; customer 2 pays $150 per thousand tools. To produce
1,000 tools at plant 1, 200 hours of labour are needed, while 300 hours are needed at plant 2. A total of
5,500 hours of labour are available for us at the two plants. Additional labour hours can be purchased at
$20 per labour hour. Plant 1 can produce up to 10,000 tools and plant 2, up to 12,000 tools. Demand by
each customer is assumed unlimited.

If we let Xij = number of tools (in thousands) produced at plant i and shipped to customer j, and L =
number of additional hours purchased
Max Z = 140X11 + 120X2 + 40X13 + 70X21 + 80X22 + 30X23 - 20L

Subject to:
X11 + X12 + X13 < 10
X21 + X22 + X23 < 12
200X11 + 200X12 + 200X13 + 300X21 + 300X22 + 300X23 - L < 5,500

a) If it costs $70 to produce 1,000 tools at plant 1 and ship them to customer 1, what would be the new
solution to the problem and the profit? (6 points)

This corresponds to a decrease in the objective function coefficient of X11 from $140 (200 - 60) to $130 (200 - 70).
A decrease of $10 is within the allowable decrease of 20 thus the optimal solution will not change however the
profit will decrease. The optimal decision calls for the production of 10,000 tools at plant 1 and shipped to customer
1 (X11 = 10) and the production of 11,670 tools at plant 2 and shipped to customer 2 (X22 = 11.67). The profit will
decrease by $100 and will be $2,233.33 [130(10) + 80(11.67)].

b) If the price of an additional hour of labor were reduced to $4, would the company purchase any
additional labor? (6 points)

This corresponds to a change in the objective function coefficient of the decision variable L. The objective function
coefficient originally at -20 is now at -4. That represents an INCREASE of 16. An increase of 16 units is within the
allowable increase of 19.73, thus the optimal solution will not change (L = 0) and the company will not purchase
any additional hour of labour.

c) A consultant offers to increase plant 1’s production capacity by 5,000 tools for a cost of $400. Should
the company take the offer? (6 points)

This corresponds to an increase of 5 to the right hand side of the first constraint, C1. Since this increase is within the
allowable increase 17.5 the value of the shadow price of 86.67 will remain valid.
The maximum price that the company is willing to pay for 1,000 tools is $86.67. However the consultant is offering
the 1,000 tools at a price of $80 (400/5). Thus the company should take the offer (they will be gaining $6.67 per
1,000 tools for a total of $33.35 for the additional 5,000 tools)
d) If the company were given 5 extra hours of labor, what would the profit become? (6 points)

This corresponds to an increase of 5 hours to the right hand of the third constraint, C3. Since this increase is within
the allowable increase of 100, the value of the shadow price of 0.27 will remain valid.
The profit will increase by: 5(0.27) = $1.35. The new profit: 2,333.33 + 1.35 = $2,334.68.

Problem 2
A large sporting goods store is placing an order for bicycles with its supplier. Four models can be ordered:
the adult Open Trail, and adult Cityscape, the girl’s Sea Sprite, and the boy’s TrailBlazer. It is assumed
that every bike ordered will be sold, and their profits, respectively, are 40, 25, 22, and 20. The LP model
should maximize the profit. There are several conditions that the store needs to worry about. One of these
is space to hold the inventory. The adult bikes need two feet, but each children’s bike needs only one
foot. The store has 500 feet of space. There are 1,200 hours of assembly time available. The children’s
bikes need 4 hours each; the Open Trail needs 5 hours and the Cityscape needs 6 hours. The store
would like to place an order for at least 275 bikes. The problem when formulated as an LP and solved is
as follows:

Max Z = 30X1 + 25X2 + 22X3 + 20X4

Subject to:
2X1 + 2X2 + X3 + X4 < 500
5X1 + 6X2 + 4X3 + 4X4 < 1,200
X1 + X2 + X3 + X4 > 275
X1, X2, X3, X4 > 0
a) What would be the optimal order of each kind of bike and the optimal profit if the profit on the Cityscape
increases to $35? (4 points)

An increase in 1- in C2 is within the allowable increase of $13. Thus the solution will not change: The optimal order
of each kind will remain the same:
● X1 = 100 adult open trail
● X2 = 0 cityscape
● X3 = 175 girl’s sea sprite
● X4 = 0 trailblazer

The optimal profit = $6,850

b) Suppose you work in the store and you are offered 200 additional hours of assembly time for a total
cost of $1,200. What would you say yes or no? Justify. (3 points).

200 hours of assembly is beyond the allowable increase of 125. Can not answer this question, needs to resolve with
excel.

c) How much storage space will be left unused? Justify. (3 points)

Storage space available: 500

Storage space used: 375
Storage space left unused 500-375 = 125 feet of space

d) What would the profit be if we require 5 more bikes inventory? Justify. (3 points)

The order placed is 275 bikes. An additional 5 bikes is within the allowable increase limit of 25 bikes. The profit
will be: Z = $6,850 + 5(-$10) = $6,800. (profit will decrease by $50)

e) Which resource should the company work to increase, inventory space or assembly time? Justify. (2
points)

Assembly time shadow price = $8

Inventory space shadow price = $0

f) By how much the profit of the TrailBlazer bike has to increase in order to become profitable to order it?
Justify. (2 points)
The profit of the trailblazer has to increase by $2 (the reduced cost is -$2)

g) What would happen if the profit of Open trail drops to $28 and the profit of Cityscape increases to $27?
Justify. (3 points)

Use the 100% rule: (2/2.5)100 + (2/13)100 = 95.4% < 100

The order will not change. However, the profit will decrease by: $2(100) = $200 → Z = $6,650