INDIAN INSTITUTE OF MANAGEMENT INDORE

Post Graduate Programme in Management

Term: II Batch: PGP 2021-23

Subject: IQDM

QUIZ 1 Date: Monday, 29 November 2021

Total Marks: 100 Duration: 60 minutes

Instructions:

1. This is an open notebook, closed book quiz. You are allowed to have your
own handwritten notes and your case-material. Other books, photocopies of
others’ notes or of parts of books, printouts, and loose sheets of paper are
not allowed. No sharing or passing around of notes.
2. You may use blank pages in your notebook and graph sheets stuck to your
notebook for rough work. No rough sheets will be provided.
3. Your laptop/ desktop and internet must be used only for answering this
question paper and not for performing any computation or for drawing graphs
or for using any software or for browsing anything. You are not allowed to use
Microsoft Excel Solver or Open Office or Google sheet or any other
spreadsheet or any other software, and are not allowed to use your internet
browser for anything else except for answering this question paper.
4. You may use a simple, scientific (non-programmable, non-graphing)
calculator. No sharing or passing around of calculators. Mobile phones and
other electronic devices are not allowed.
5. For each question, the maximum marks that can be earned are mentioned in
parentheses, at the end of the question.

6. For each Multiple-Choice Question (MCQ), there is exactly one correct choice.
No explanation/ steps are required for the MCQs. If you choose more than one
answer, it will be considered wrong. There is negative marking for MCQs. For
each correct answer, you will get 4 marks and for each wrong answer, you
will lose 1 mark.
7. For Work-it-out Questions requiring detailed answers, type your answers in
the space provided besides each question. Please type your answers as
precisely as possible. Credit (marks) will be given for correctness,
completeness as well as brevity. Answers without necessary steps/
computation/ justification/ explanation will not fetch any marks. If you write
more than one answer for any question and one of them is wrong, no marks
will be given.

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Questions 7 to 16 are work-it-out questions requiring detailed answers, and are
based on the following:

C&T 3D-Printing Company produces chairs and tables from the same type of raw
material which they call eco-friendly plastic (EFP). C&T gets 120 kg of EFP, every
week, and does not carry forward any unused EFP from one week to the next. C&T
uses 3 kg of EFP to make a chair and 4 kg of EFP to make a table. C&T requires 4
hours to make a chair and 2 hours to make a table. C&T has a total of 80 hours (for
making chairs and tables) per week. Each table sold results in a contribution of Rs.
200, and each chair sold yields a contribution of Rs. 250. XYZ wants to maximize the
total weekly contribution.

Let x and y be the number of chairs and tables, respectively, to be produced

per week.

max z = 250x + 200y

subject to the constraints:

3x + 4y ≤ 120 ……… (C1)

4x + 2y ≤ 80 ……… (C2)

x, y ≥ 0

Corner points of the feasible region are (0, 0), (20, 0), (8, 24), and (0, 30).

Optimal point is (8, 24) which is the intersection of C1 and C2.

Optimal value of z = 6800.

15. Find the shadow prices of each of the constraints and the corresponding
allowable increase and decrease. (12 marks)

Shadow price of C1:

The question is “What is the worth of one additional kg of EFP?”.

That is, “what is the increase in total contribution if the RHS of C1 increases by
1?”.

If RHS of C1 becomes 121, solve modified C1, that is, 3x + 4y = 121, and original
C2, 4x + 2y = 80, to get the new intersection (7.8, 24.4).

New optimal value of z = 250x + 200y

= 250*7.8 + 200*24.4
= 6830.

Original optimal value of z = 6800 (when x = 8, y = 24).

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Shadow price of C1 = change in the value of z = 6830 − 6800 = ₹30.

Allowable increase:

The optimal point keeps moving on C2, x decreasing by 0.2 and y increasing by
0.4 at each step (with each increase in RHS of C1 by 1).
(Note the change above, from (8, 24) to (7.8, 24.4)).

Note that the corner point (0, 30) is the intersection of C1 with the y-axis. As the
RHS of C1 increases, this point also moves to (0, 30.25), (0, 30.5) and so on,
till it reaches (0, 40), the point of intersection of C2 with the y-axis. After this,
C2 becomes the bottle-neck and adding more kgs to the RHS of C1 is worth
nothing. (Note, for example, that (0, 40.25) is outside the feasible region).

At this point (that is, at (0, 40)) the RHS of C1 has become 160 (as LHS = 3x + 4y
= 3*0 + 4*40 = 160), an increase of 40 from the initial 120 (which is the original
RHS of C1).

Therefore, allowable increase = allowable change in RHS of C1 = 40.

Allowable decrease:

In the other direction, that is, when the RHS of C1 is reduced by 1, the optimal
point changes to (8.2, 23.6). x increases by 0.2 and y decreases by 0.4 for every
1kg decrease in the RHS of C1. The optimal point keeps changing till it reaches
(20, 0) (which is the intersection of C2 with the x-axis). At this point, RHS of C1
has become 60.

Therefore, allowable decrease = 120 − 60 = 60.

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