Excel Solver & Sensitivity Analysis

Dr. Ramesh Krishnan

IIM Kozhikode.
Ramesh.Krishnan@iimk.ac.in
Problem 1
Decision Variables:
X1 = Number of units of Product A made
X2 = Number of units of Product B made
Parameters/Resources:
Resources R1 & R2
Objective Function:

Constraints:
Problem 4
Problem 4

Aqua Spa (x1) Hydro-Lux (x2)

122 78
Total
Profit 350 300 66100 RHS
Pumps 1 1 200 200

Labour hours 9 6 1566 1566

Feet of tubing 12 16 2712 2880

Variable Cells
Final Reduced Objective Allowable Allowable Allowable inc/dec indicates that even if we
Cell Name Value Cost Coefficient Increase Decrease inc/dec the obj coeff value, the final value
will be same.
$B$3 Aqua Spa (x1) 122 0 350 100 50
$C$3 Hydro-Lux (x2) 78 0 300 50 66.66666667

1. What if profit for Hydro-Lux increases from 300 to 310? Whether the final value changes?
The profit will be 350*122+310*78 = 68880 (as against the initial profit of 66100)
2. What if the profit for Hydro-Lux increases from 300 to 370?
Since this is above the allowable increase, we cannot calculate the inc in profit directly. We have to solve the
problem again. (Because the slope of the objective function changes and so the opt corner point is changing
too.)
 Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$6 Pumps Total 200 200 200 7 26
$E$7 Labour hours Total 1566 16.66666667 1566 234 126
$E$8 Feet of tubing Total 2712 0 2880 1E+30 168

3. What if only 195 pumps were available instead of 200?

Decrease of pumps by 5 would reduce the profit by 5*200 (shadow price)= 1000. Accordingly, the decision variables
value changes and we have to solve the problem again using excel to find that.

4. What if extra 10 pumps were available?

Shadow price can’t be used to predict the change in profit since this is out of allowable inc/dec.
 Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$6 pumps Total 200 200 200 7 26
$E$7 Labour hours Total 1566 16.66666667 1566 234 126
$E$8 Feet of tubing Total 2712 0 2880 1E+30 168

5. Would it be profitable to introduce a new product, Typhoon Lagoon, with profit contribution $320 per unit and
resource requirements 1 pump, 8 labor hours and 13 feet of tubing per unit?

Suppose one Typhoon Lagoon is produced, gain is $320 of extra profit.

Cost is due to shifting resource away from the old products to the Typhoon Lagoon. Net gain from one unit of the new
product = unit profit 320-cost of resource (1*SP1 + 8*SP2 + 13*SP3 = 320-(1*200+8*16.67+13*0) = -13.33. So, adding this
would only decrease the profit.

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Aqua Spa (x1) 122 0 350 100 20
$C$3 Hydro-Lux (x2) 78 0 300 50 40
$D$3 Typhoon-Lagoons (x3) 0 -13.33333333 320 13.33333333 1E+30
So, what is reduced cost?
 Hydro-Lux Typhoon-Lagoons
Aqua Spa (x1) (x2) (x3)
122 78 0
Total
Profit 350 300 320 66100RHS
pumps 1 1 1 200 200
Labour hours 9 6 8 1566 1566
Feet of tubing 12 16 13 2712 2880