MANAGEMENT SCIENCE
CHAPTER 1 Introduction
Analog Model – Although physical in
form, an analog model does not have a
physical appearance similar to the real
object or situation it represents.
Breakeven Point – The volume at
which total revenue equals total cost.
Constraints- Restriction or limitations
imposed on a problem.
Controllable Inputs – The inputs that
are controlled or determined by the
decision maker.
Decision – The alternative selected.
Decision Making – The process of
defining the problem, identifying the
alternatives, determining the criteria,
evaluating the alternatives, and
choosing an alternative.
Decision Variable – Another term for
controllable input.
Deterministic Model – A model in
which all uncontrollable inputs are
known and cannot vary.
Feasible solution – A decision
alternative or solution that satisfies all
constraints.
Fixed cost – The portion of the total
cost that does not depend on the
volume; this cost remains the same no
matter how much is produced.
Iconic model – A physical replica, or
representation, of a real object
Infeasible solution – A decision
alternative or solution that does not
satisfy one or more constraints.
Marginal cost – The rate of change of
the total cost with respect to volume.
Marginal revenue – The rate of change
of total revenue with respect to volume.
Mathematical model – Mathematical
symbols and expressions used to
represent a real situation.
Model – A representation of a real
object or situation.
Multicriteria decision problem – A
problem that involves more than one
criterion; the objective is to find the
“best” solution, taking into account all
the criteria.
Objective function – A mathematical
expression that describes the problem’s
objective.
Optimal solution – The specific
decision-variable value or values that
provide the “best” output for the model.
Problem solving – The process of
identifying a difference between the
actual and the desired state of affairs
and then taking action to resolve the
difference.
Single-criterion decision problem – A
problem in which the objective is to find
the “best” solution with respect to just
one criterion.
Stochastic (probabilistic) model – A
model in which at least one
uncontrollable input is uncertain and
subject to variation; stochastic models
are also referred to as probabilistic
models.
Uncontrollable inputs – The
environmental factors or inputs that
cannot be controlled by the decision
maker.
Variable cost – The portion of the total
cost that is dependent on and varies
with the volume.
CHAPTER 2 Linear Programming
Alternative Optimal Solution – The
case in which more than 1 solution
provides the optimal value for the
objective function.
Constraints – An equation or inequality
that rules out certain combinations of
decision variables as feasible solutions.
Decision Variable – A controllable
input for a linear programming model.
Extreme Point – Graphically speaking,
extreme points are the feasible solution
points occurring at the vertices or
“corners” of the feasible region.
Feasible Region – The set of all
feasible solutions.
Feasible Solution – A solution that
satisfies all the constraints.
Infeasibility – The situation in which no
solution to the linear programming
problem satisfies all the constraints.
Linear Functions – Mathematical
expressions in which the variables
appear in separate terms and are
raised to the first power.
Linear Program – Another term for
linear programming model.
Linear Programming Model – A
mathematical model with a linear
objective function, a set of linear
constraints, and nonnegative variables.
Mathematical Model – A
representation of a problem where the
objective and all constrains conditions
are described by mathematical
expressions.
Nonnegativity Constraints – A set of
constraints that requires all variables to
be nonnegative.
Problem Formulation – The process
of translating the verbal statement
called the mathematical model.
Redundant Constraints – A constrains
that does not affect the feasible region.
If a constraint is redundant, it can be
removed from the problem without
affecting the feasible region.
Slack Variable – A variable added to
the left-hand side of a less-than-or-
equal-to constraint to convert the
constraint into an equality. Amount of
unused resource.
Standard Form – A linear program in
which all the constraints are written as
equalities. The optimal solution of the
standard form of a linear program is the
same as the optimal solution of the
original formulation of the linear
program.
Surplus Variable – Subtracted from
the left-hand side of a greater-than-or-
equal-to constraint to convert the
constraints into an equality. The value
of this variable can usually be
interpreted as the amount over and
above some required minimum level.
Unbounded – If the value of the
solution may be made infinitely small in
a minimization problem without violating
any of the constraints, the problem is
said to be unbounded.
CHAPTER 3 Sensitivity Analysis
Dual value – The change in the value
of the objective function per unit
increase in the right-hand side of a
constraint.
Objective function allowable
increase (decrease) – The allowable
increase/decrease of an objective
function coefficient is the amount the
coefficient may increase (decrease)
without causing any change in the
values of the decision variables in the
optimal solution. The allowable
increase/decrease for the objective
function coefficients can be used to
calculate the range of optimality.
Range of feasibility – The range of
values over which the dual value is
applicable.
Range of optimality – The range of
values over which an objective function
coefficient may vary without causing
any change in the values of the
decision variables in the optimal
solution.
Reduced cost – The reduced cost of a
variable is equal to the dual value on
the nonnegativity constraint for that
variable.
Relevant cost – A cost that depends
upon the decision made. The amount of
a relevant cost will vary depending on
the values of the decision variables.
Right-hand-side allowable increase
(decrease) – The allowable increase
(decrease) of the right hand side of a
constraint is the amount the right-hand
side may increase (decrease) without
causing any change in the dual value
for that constraint. The allowable
increase (decrease) for the right-hand
side can be used to calculate the range
of feasibility for that constraint.
Sensitivity analysis – The study of
how changes in the coefficients of a
linear programming problem affect the
optimal solution.
Sunk cost – A cost that is not affected
by the decision made. It will be incurred
no matter what values the decision
variables assume.
CHAPTER 4 Application
MARKETING APPICATIONS
Media Selection – Designed to help
marketing managers allocate a fixed
advertising budget to various
advertising media.
OBJECTIVE: Maximize reach,
frequency and exposure
MODEL: This analyzes the problem by
formulating a linear programming model
by using the cost-per interview data.
NOTE: In media selection model,
judgment is an acceptable way of
obtaining input for a linear programming
model.
Marketing Research – (a) To learn
about customer characteristics,
attitudes and preferences. (b)Designing
the study, conducting market surveys,
analyzing data collected etc.
OBJECTIVE: Conduct the survey as to
meet the client’s needs at minimum
cost.
RESTRICTIONS: Company Policy,
Contract Requirements & Media
Availability
FINANCIAL APPLICATIONS
Portfolio Selection – Situations where
a financial manager must select specific
investments like stocks and bonds from
a variety of investment alternatives.
OBJECTIVE: Maximize expected return
or minimization of risk
RESTRICTIONS: Type of permissible
investments, state laws, company
policy, maximum permissible risk etc.
NOTE: The Financial portfolio theory
stresses obtaining a proper balance
between risk and return and to note that
risk is controlled by choosing
constraints that ensure balance and
diversity.
OPERATIONS MNGMT APP
A Make-or-Buy Decision – To
determine how much of each of several
component parts a company should
manufacture, how much it should
purchase from an outside supplier.
OBJECTIVE: Minimize the total cost
including manufacturing costs,
purchase costs and overtime costs.
Production Scheduling – Multiperiod
planning
- Enables the manager to establish an
efficient low-cost production schedule
for one or more products over several
time periods.
- Must be established for the current
month, then again for the next month
etc.
Workforce Assignment – frequently
occur when production managers must
make decisions involving staffing
requirements for a given planning
period. It often have some flexibility,
and at least some personnel can be
assigned to more than one department
or work center.
Blending Problems - Arise whenever a
manager must decide how to blend two
or more resources to produce one or
more products.
- occur frequently in the petroleum
industry (e.g., blending crude oil to
produce different octane gasoline),
chemical industry (e.g., blending
chemicals to produce fertilizers and
weed killers), and food industry (e.g.,
blending ingredients to produce soft
drinks and soups).
CHAPTER 5 Advanced Linear
Programming Applications
Data envelopment analysis (DEA) – A
linear programming application used to
measure the relative efficiency of
operating units with the same goals and
objectives.
Efficiency index – Percentage of an
individual operating unit’s resources
that are available to the composite
operating unit.
Expected value – In a mixed strategy
game, a value computed by multiplying
each payoff by its probability and
summing. It can be interpreted as the
long-run average payoff for the mixed
strategy.
Game theory – A decision-making
situation in which two or more decision
makers compete by each selecting one
of several strategies. The combination
of the competing strategies provides the
value of the game to the players.
Hypothetical composite – A weighted
average of outputs and inputs of all
operating units with similar goals.
Maximin strategy – A strategy where
the player seeking to maximize the
value of the game selects the strategy
that maximizes the minimum payoff
obtainable by the other player.
Minimax strategy – A strategy where
the player seeking to minimize the
value of the game selects the strategy
that minimizes the maximum payoff
obtainable by the other player.
Mixed strategy – When a player
randomly selects its strategy based on
a probability distribution. The strategy
selected can vary each time the game
is played.
Pure strategy – When one of the
available strategies is optimal and the
player always selects this strategy
regardless of the strategy selected by
the other player.
Saddle point – A condition that exists
when pure strategies are optimal for
both players. Neither player can
improve the value of the game by
changing from the optimal pure
strategy.
Two-person, zero-sum game – A
game with two players in which the gain
to one player is equal to the loss to the
other player.
CHAPTER 6 Distribution and Network
Models
Arcs – The lines connecting the nodes
in a network.
Assignment problem – A network flow
problem that often involves the
assignment of agents to tasks; it can be
formulated as a linear program and is a
special case of the transportation
problem.
Capacitated transportation problem–
A variation of the basic transportation
problem in which some or all of the arcs
are subject to capacity restrictions.
Capacitated transshipment problem-
A variation of the transshipment
problem in which some or all of the arcs
are subject to capacity restrictions.
Dummy origin – An origin added to a
transportation problem to make the total
supply equal to the total demand. The
supply assigned to the dummy origin is
the difference between the total
demand and the total supply.
Flow capacity – The maximum flow for
an arc of the network. The flow capacity
in one direction may not equal the flow
capacity in the reverse direction.
Maximal flow – The maximum amount
of flow that can enter and exit a network
system during a given period of time.
Network – A graphical representation
of a problem consisting of numbered
circles (nodes) interconnected by a
series of lines (arcs); arrowheads on
the arcs show the direction of flow.
Transportation, assignment, and
transshipment problems are network
flow problems.
Nodes – The intersection or junction
points of a network.
Shortest route – Shortest path
between two nodes in a network.
Supply chain – The set of all
interconnected resources involved in
producing and distributing a product.
Transportation problem – A network
flow problem that often involves
minimizing the cost of shipping goods
from a set of origins to a set of
destinations; it can be formulated