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Q1. a. Explain how and why Operation Research methods have been valuable in aiding executive decisions. b. Discuss the usefulness of Operation Research in decision making process and the role of computers in this field. Answer: Churchman, Aackoff and Aruoff defined Operations Research as: “the application of scientific methods, techniques and tools to operation of a system with optimum solutions to the problems”, where ‘optimum’ refers to the best possible alternative. The objective of Operations Research is to provide a scientific basis to the decision-makers for solving problems involving interaction of various components of the organisation. You can achieve this by employing a team of scientists from different disciplines, to work together for finding the best possible solution in the interest of the organisation as a whole. The solution thus obtained is known as an optimal decision. You can also define Operations Research as “The use of scientific methods to provide criteria for decisions regarding man, machine, and systems involving repetitive operations”. OR ―Operation Techniques is a bunch of mathematical techniques.‖ b. “Operation Research is an aid for the executive in making his decisions based on scientific methods analysis”. Discuss the above statement in brief. Answer: ―Operation Research is an aid for the executive in making his decisions based on scientific methods analysis‖. Discussion:Any problem, simple or complicated, can use OR techniques to find the best possible solution. This section will explain the scope of OR by seeing its application in various fields of everyday life. 1

i) In Defense Operations: In modern warfare, the defense operations are carried out by three major independent components namely Air Force, Army and Navy. The activities in each of these components can be further divided in four sub-components namely: administration, intelligence, operations and training and supply. The applications of modern warfare techniques in each of the components of military organisations require expertise knowledge in respective fields. Furthermore, each component works to drive maximum gains from its operations and there is always a possibility that the strategy beneficial to one component may be unfeasible for another component. Thus in defense operations, there is a requirement to co-ordinate the activities of various components, which gives maximum benefit to the organisation as a whole, having maximum use of the individual components. A team of scientists from various disciplines come together to study the strategies of different components. After appropriate analysis of the various courses of actions, the team selects the best course of action, known as the ‗optimum strategy‘. ii) In Industry: The system of modern industries is so complex that the optimum point of operation in its various components cannot be intuitively judged by an individual. The business environment is always changing and any decision useful at one time may not be so good some time later. There is always a need to check the validity of decisions continuously against the situations. The industrial revolution with increased division of labour and introduction of management responsibilities has made each component an independent unit having their own goals. For example: production department minimises the cost of production but maximise output. Marketing department maximises the output, but minimises cost of unit sales. Finance department tries to optimise the capital investment and personnel department appoints good people at minimum cost. Thus each department plans its own objectives and all these objectives of various department or components come to conflict with one another and may not agree to the overall objectives of the organisation. The application of OR techniques helps in overcoming this difficulty by integrating the diversified activities of various components to serve the interest of the organisation as a whole efficiently. OR methods in industry can be applied in the fields of production, inventory controls and marketing, purchasing, transportation and competitive strategies. iii) Planning: In modern times, it has become necessary for every government to have careful planning, for economic development of the country. OR techniques can be fruitfully applied to maximise the per capita income, with minimum sacrifice and time. A government can thus use OR for framing future economic and social policies. iv) Agriculture: With increase in population, there is a need to increase agriculture output. But this cannot be done arbitrarily. There are several restrictions. Hence the need to determine a course of action serving the best under the given restrictions. You can solve this problem by applying OR techniques. v) In Hospitals: OR methods can solve waiting problems in out-patient department of big hospitals and administrative problems of the hospital organisations. 2

Advertising alternatives include television. A classic example of the application of linear programming is the maximization of profits given various production or cost constraints. Audience estimates. How do you recognise optimality in the simplex method? b. financial decision making. vii) Research and Development: You can apply OR methodologies in the field of R&D for several purposes. radio. Linear programming can be applied to a variety of business problems.vi) In Transport: You can apply different OR methods to regulate the arrival of trains and processing times minimise the passengers waiting time and reduce congestion. and resource blending. and newspaper. workforce assignment. costs.200. production scheduling. a. Q3. such as marketing mix determination. how many commercial messages should be run on each medium to maximize total audience contact? Linear programming can find the answer. Q2. The local Chamber of Commerce periodically sponsors public service seminars and programs. Answer: Linear programming problems are a special class of mathematical programming problems for which the objective functions and all constraints are linear. Write the role of pivot element in simplex table? Answer: Simplex method is used for solving Linear programming problem especially when more than two variables are involved SIMPLEX METHOD 3 .‖ MEDIA SELECTION PROBLEM. Promotional plans are under way for this year‘s program. thereby reducing the costs and time of trans-shipment. and maximum media usage limitations are shown in Exhibit 1. If the promotional budget is limited to $18. formulate suitable transportation policy. Such problems are generally solved using the ―simplex method. Explain how the linear programming technique can be helpful in decision-making in the areas of Marketing and Finance. such as to control and plan product introductions.

Write the objective function as the bottom row. Convert the inequalities into equations. we start again from step 4. Construct the initial simplex tableau. 5.1. or that has a zero in the denominator. This is done by adding one slack variable for each inequality. She has determined that for every hour she works at Job I. All other variables are zero. how many hours should she work per week at each job to maximize her income? Solution: In solving this problem. 7. 4 . The quotients are computed by dividing the far right column by the identified column in step 4. This is done the same way as we did with the Gauss-Jordan method. or a negative number. is ignored. The most negative entry in the bottom row identifies a column. Read off your answers. Example Niki holds two part-time jobs. we will follow the algorithm listed above. we are finished. otherwise. When there are no more negative entries in the bottom row. 8. and for every hour she works at Job II. she needs 2 hours of preparation time. A quotient that is a zero. Calculate the quotients. Job I and Job II. and $30 an hour at Job II. and she cannot spend more than 16 hours for preparation. If she makes $40 an hour at Job I. Get the variables using the columns with 1 and 0s. The smallest quotient identifies a row. The maximum value you are looking for appears in the bottom right hand corner. she needs one hour of preparation time. 4. She never wants to work more than a total of 12 hours a week. The element in the intersection of the column identified in step 4 and the row identified in this step is identified as the pivot element. write the objective function and the constraints. 3. 6. Set up the problem. 2. Perform pivoting to make all other entries in this column zero. That is.

Later when we read off the final solution from the simplex table. say 10. if Niki works fewer that 12 hours. The problem is formulated the same way as we did in the last chapter. and we get x1 + x2 + y1 = 12 Here the variable y1 picks up the slack. Let x1 = The number of hours per week Niki will work at Job I. it is not practical to use the variables x. After adding the slack variables. x3. and x2 = The number of hours per week Niki will work at Job II. z etc. the values of the slack variables will identify the unused amounts. This is done by adding one slack variable for each inequality. We use the symbols x1. We can even rewrite the objective function Z = 40×1 + 30×2 as – 40×1 – 30×2 + Z = 0. Since the simplex method is used for problems that consist of many variables. we add a non-negative variable y1. and it represents the amount by which x1 + x2 falls short of 12. x2 ≥ 0 2. y. then y1 is 2. In this problem.1. It is customary to choose the variable that is to be maximized as Z. Convert the inequalities into equations. That is. x2 ≥ 0 5 . For example to convert the inequality x1 + x2 ≤ 12 into an equation. our problem reads Objective function: – 40×1 – 30×2 + Z = 0 Z = 40×1 + 30×2 x1 + x2 ≤ 12 Subject to constraints: x1 + x2 + y1 = 12 2×1 + x2 + y2 = 16 x1 ≥ 0. and so on. write the objective function and the constraints. Set up the problem. Maximize Subject to: 2×1 + x2 ≤ 16 x1 ≥ 0. x2.

we get Which reads y1 = 12 y2 = 16 Z =0 The solution obtained by arbitrarily assigning values to some variables and then solving for the remaining variables is called the basic solution associated with the tableau. So the above solution is the basic solution associated with the initial simplex tableau. Write the objective function as the bottom row. x1 x2 1 1 2 1 –40 –30 y1 1 0 0 y2 0 1 0 Z 0 0 1 12 16 0 y1 y2 Z 4. The most negative entry in the bottom row identifies a column. x1 1 2 –40 x2 1 1 –30 y1 y2 1 0 0 1 0 0 Z 0 0 1 12 y1 16 y2 0 Z 6 .3. Now that the inequalities are converted into equations. The reader needs to observe that the last four columns of this matrix look like the final matrix for the solution of a system of equations. If we arbitrarily choose x1 = 0 and x2 = 0. The horizontal line separates the constraints from the objective function. we can represent the problem into an augmented matrix called the initial simplex tableau as follows. x1 x2 1 1 2 1 –40 –30 y1 1 0 0 y2 0 1 0 Z 0 0 1 C 12 16 0 Here the vertical line separates the left hand side of the equations from the right side. Construct the initial simplex tableau. The right side of the equation is represented by the column C. We can label the basic solution variable in the right of the last column as shown in the table below. The most negative entry in the bottom row is –40. therefore the column 1 is identified.

The expression to be maximized or minimized is called the objective function (cTx in this case).Q4. and manufacturing. It is used most extensively in business and economics. can be converted into a dual problem. Otherwise. assignment. More formally. energy. a linear programming method will find a point on the polytope where this function has the smallest (or largest) value if such point exists. which provides an upper bound to the optimal value of the primal problem. linear programming is a technique for the optimization of a linear objective function. Duality: Every linear programming problem. It has proved useful in modeling diverse types of problems in planning. by searching through the polytope vertices. referred to as a primal problem. Linear programs are problems that can be expressed in canonical form: where x represents the vector of variables (to be determined). Industries that use linear programming models include transportation. c and b are vectors of (known) coefficients and A is a (known) matrix of coefficients. they are incomparable. Given a polytope and a realvalued affine function defined on this polytope. scheduling. with the corresponding asymmetric dual problem. telecommunications. What is the significance of duality theory of linear programming? Describe the general rules for writing the dual of a linear programming problem. In matrix form. Linear programming is a specific case of mathematical programming. Answer: Linear programming (LP) is a mathematical method for determining a way to achieve the best outcome (such as maximum profit or lowest cost) in a given mathematical model for some list of requirements represented as linear relationships. The equations Ax ≤ b are the constraints which specify a convex polytope over which the objective function is to be optimized. routing. and design. but can also be utilized for some engineering problems. we can express the primal problem as: Maximize cTx subject to Ax ≤ b. Minimize bTy subject to ATy ≥ c. 7 . y ≥ 0. Minimize bTy subject to ATy = c. (In this context. y ≥ 0. with the corresponding symmetric dual problem. An alternative primal formulation is: Maximize cTx subject to Ax ≤ b. two vectors are comparable when every entry in one is less-than or equal-to the corresponding entry in the other. x ≥ 0. subject to linear equality and linear inequality constraints.) Linear programming can be applied to various fields of study.

One is the fact that (for the symmetric dual) the dual of a dual linear program is the original primal linear program. then the dual also has an optimal solution. X3. then the primal must be infeasible. However. such that cTx*=bTy*. if the dual is unbounded. S1. X1. Maximize Subject to Z* = A1 2 × 1 + x2 – S1 + A1 = 2 8 Z = X1 + X2 + X3 + MA1 + 0S1 + 0S2 .There are two ideas fundamental to duality theory. Use Two-Phase simplex method to solve: Solution: Rewriting in the standard form. Duality theory tells us that if the primal is unbounded then the dual is infeasible by the weak duality theorem. Manimize Subject to X1 – 3X2 +4X3 +MA1 = 5 X1 -2X2 + S1 = 3 2X2 + X3 . y*. A1 > 0. 5.S2 = 4. every feasible solution for a linear program gives a bound on the optimal value of the objective function of its dual. The strong duality theorem states that if the primal has an optimal solution. it is possible for both the dual and the primal to be infeasible. The weak duality theorem states that the objective function value of the dual at any feasible solution is always greater than or equal to the objective function value of the primal at any feasible solution. S2. Phase 1: Consider the new objective. X2. Additionally. x*. Likewise. A linear program can also be unbounded or infeasible.

X1 Cj A1 .1 S1 0 S2 0 Zj Zj-Cj 0 1 1 0 1 1 X2 0 -3* -2 2 -3 -3 ↑ most – ve Work Column X3 0 4 0 1 4 4 S1 0 0 1 0 0 0 S2 0 0 0 -1 0 0 A1 1 1 0 0 1 0 5 3 4 Ratio -5/3 -1 -4/3 *Pivot element X1 enters the basic set replacing A1. Maximize z = x1 + x2+x3 + 0S1 + 0S2 9 . The first iteration gives the following table: X1 Cj X1 0 S2 0 S3 0 Zj Zj-Cj 0 -1/3 -1/2 0 0 0 X2 0 1 -7/2 2 0 0 X3 0 -4/3 -2 1 0 0 S1 0 0 1 0 0 0 S2 0 0 0 -1 0 0 A1 1 -1/3 -1/2 0 0 -1 -5/3 ½ 4 0 Phase I is complete. Phase II: Consider the original objective function. since there are one negative elements in the last row.

P. S1. x2. the corresponding simplex table is X1 Cj X1 1 S1 0 S2 0 Zj Zj-Cj 1 -1/3 -1/2 0 -1/3 -4/3 X2 1 1 1/2 4 1/2/2=1 X3 S1 S2 A1 Ratio Work column *Pivot element S1 S2 S3 X1 S2 0 S3 0 Zj-Cj 7/4 0 1 1 1 0 0 0 1/2 0 0 0 0 0 Since all elements of the last row are negative. The maximum value of the objective function Z = 6 which is attained for x1 = 2. S2 = 0 with the initial solution X1 = 1. Use Branch and Bound method to solve the following L.P: 10 .Subject to -3x1/3 + x2 – 4x3/3 =-5/3 -x1/2 – 7x2/2 – 2x3 + S1 =1/2 2x2 + x3 –S2 = 4 x1. the current solution is optimal. S1 = 0. x2 = 0. 6. S2 = 0.

Then since [X1*]= [9 /2] = 4. which is designated as problem 1. The master list contains only the L. We choose problem 2. proceed from step 2 to step 3. Step 1 establishes that problem 2 has the feasible solution z0 = 35. and select x1. 4 < x2 <7 Problem 5: (1) (2) and 0 ≤ x1 ≤ 4; 0 ≤ x2 ≤ 3 11 . Choose it in step 0. Returning to step 0 with z (2) = 35. X2= 7 / 2 (Solution to problem 1) Since the solution is not integer valued.P. (1) (2) and (3). x1 = 5 x2 = 0 [solution to problem (2)] …………… (5) Since this satisfies the integer constraints. X2 = 10 / 3 (Problem 3) Since the solution is not integer valued. therefore at step 2 we record it by enclosing in a rectangle and let z (2) = 35. place on the master list the following two additional problems.Solution: At the starting iteration we can consider z (0) = 0 to be the lower bound. Then [X1*]= [10/3] = 3. we find that problem 3 is available. and in step 1 determine the optimum solution. Step 1 determines the following optimum feasible solution to it Z0 = 58. We add the following additional problems on the master list: Problem 4: (1) (2) and 0 < x1 < 4. for x.P. x1 = 4. proceed from step 2 to step 3 and select x2. Problem 2: (1) (2) and 5 ≤ x1 ≤ 7; 0 ≤ x2 ≤ 7 Problem 3: (1) (2) and 0 ≤ x1 ≤ 4 ; 0 ≤ x2 ≤ 7 Returning to step 0: with z (1) = z (0) = 0. since all xj = 0 is feasible. Z0=63 X1= 9 / 2.

Now. is Z0 = 55. choose problem 4 from step 1 we know that problem 4 has no feasible solution and so we again return to step 0 with z (4) = z (3) = 35.Returning to step 0 with z (3) = z (2) = 35. We record it by enclosing inside a rectangle and let z (5) = 55.Only problem 5 is available in the master list.P.P. The best of these gives the optimum solution to the given L. on terminating we find that only two feasible integer solution namely (5) and (6) have been recorded. x2 = 3 12 . Hence the optimum integer solution to the given L. we find that the master list is empty. and thus the algorithm terminates. In step 1 we determine the following optimum solution to this problem. x1 = 4. z0 = 55 x1 = 4 x2 = 3 (solution to problems) -------.P.P. therefore at step 2. Returning to step 0.(6) Since this satisfies the integer constraints.

Tree diagram of above example Z*=63 1 1 [X1= 4 / 2 . x2 = 0) x2 < 3 x2 > 4 Node (5) Node (4) Z* = 55 (x1 = 4. X2 = 3 / 3 ] (x1 = 5. x2 = 3) Optimal solution No solution 13 . X2 = 3 / 2 ] x1 < 4 Node (3) Node (2) x1 > 5 Z*=58 Z*=35 1 [X1 = 4 .

Node (1) (2) (3) (4) (5) Solution x1 x2 z* Additional Constraints __ Type of solution Non-integer (Original problem) Integer ← z* (1) Non-integer No solution Integer ←z* (2) (Optimal) 9/2 7/2 63 35 58 …… 55 5 0 4 10 /3 …… …… 4 3 x1 > 5 x1 < 4 x1 < 4 . x 2 > 4 x1 < 4 . x2 < 3 14 .

What are the essential characteristics of Operation Research? Mention different phases in an Operation Research study. It then searches for the causes of the problem that has arisen either in one part of the system or in the interrelation parts. Application of Scientific Methodology o OR extensively uses scientific means and methods to solve problems.R Answer: Characteristics of Operations Research Operations research. an interdisciplinary division of mathematics and science. Point out some limitations of O. algorithms and mathematical modeling techniques to solve complex problems for the best possible solutions. economics and engineering. OR attempts appraise the effect the changes of any single part would have on the performance of the system as a whole. Systems Orientation o This approach recognizes the fact that the behavior of any part of the system has an effect on the system as a whole. statistics. Interdisciplinary groups o The team performing the operational research is drawn from different disciplines. Examples of maxima could be profit. applying scientific methodology. revelation of newer problems and the consideration of human factors in relation to the state under which research is being conducted. physics. It has basic characteristics such as systems orientation. uses statistics. performance and yield. providing quantitative answers. The disciplines could include mathematics. This stresses the idea that the interaction between parts of the system is what determines the functioning of the system.2 Q1. This science is basically concerned with optimizing maxima and minima of the objective functions involved. Minima could be loss and risk. using interdisciplinary groups.MB0048 –Operation Research (Book ID: B1137) Set. No single part of the system can have a bearing effect on the whole. The knowledge of all the people involved aids the research and preparation of the scientific model. Operations research is also known as OR. psychology. The management of various companies has benefited immensely from operations research. Most OR studies cannot 1 .

the next step is to express the problem into a mathematical model that represents systems. the O. Simulation of these models is carried out. etc. but in OR. its objectives and expectations. A model may also be modified if the management is not satisfied with the answer that it gives. relationships or formulas.R. the alternative courses of action are discovered in this step. Provides Quantitative Answers o The solutions found by using operations research are always quantitative. This process starts with understanding of the organizational climate. New Problems Revealed o Finding a solution to a problem in OR uncovers additional problems. which would affect the company‘s output. Therefore. processes or environment in the form of equations. 2 . research. human factors are not considered. and the findings are then studied with respect to the real environment. and the findings cannot be applied to natural environments. Further. People involved in the process may become sick. The activities that constitute this step are visits. it is generally lengthy and time consuming. The company must decide which option is the best alternative for it. PHASES OPERATIONS RESEARCH Formulate the problem: This is the most important process. The purpose of this step is to have sufficient input to operate and test the model. Such a scenario would result in unexpected costs and budget overruns. Human Factors o In other forms of quantitative research. We have to identify both the static and dynamic structural elements. observations. scientist gets sufficient information and support to proceed and is better prepared to formulate the problem. The proposed model may be field tested and modified in order to work under stated environmental constraints. A company looking to reduce costs in manufacturing might discover in the process that it needs to buy one more component to manufacture the end product. To obtain maximum benefits from the study.be conducted in laboratories. human factors are a prime consideration. OR considers two or more options and emphasizes the best one. With the help of such activities. and device mathematical formulas to represent the interrelationships among elements. Ensuring flexibility for such contingencies is a key characteristic of OR. Develop a model: Once a problem is formulated. New problems must be pursued immediately to be resolved. Select appropriate data input: Garbage in and garbage out is a famous saying. ongoing and continuous research is necessary. No model will work appropriately if data input is not appropriate. scientific and mathematical models are used for studies.

techniques results in improved working and wins the management support.R. Implement the solution: The implementation of the solution involves so many behavioural issues and the implementing authority is responsible for resolving these issues. All relevant variables do not lend themselves to quantification. The gap between one who provides a solution and one who wishes to use it should be eliminated. a fairly good solution at present may be more desirable than a perfect O. Thus. Moreover. who might not be aware of the business problems. It must take into account the complexities of human relations and behaviour. A properly implemented solution obtained through O. Implementation: Implementation of decisions is a delicate task. Factors that cannot be quantified find no place in O. To achieve this. O. these factors are enormous and expressing them in quantity and establishing relationships among these require voluminous calculations that can only be handled by computers.R.Solution of the model: After selecting the appropriate data input. incorporating them into the O. then updating and modification is considered at this stage. If the model is not behaving properly.R.R. models.R. the next step is to find a solution. scientist as well as management should play a positive role. Distance between Manager and Operations Researcher: O. A model must be applicable for a longer time and can be updated from time to time taking into consideration the past. present and future aspects of the problem.R. Validation of the model: A model is said to be valid if it can provide a reliable prediction of the system‘s performance. Limitations Dependence on an Electronic Computer: O. Non-Quantifiable Factors: O. Similarly. Money and Time Costs: When the basic data are subjected to frequent changes. techniques try to find out an optimal solution taking into account all the factors. models is a costly affair. a manager fails to understand the complex working of O. solution available after sometime.R. techniques provide a solution only when all the elements related to a problem can be quantified. there is a gap between the two. 3 .R.R. being specialist‘s job requires a mathematician or a statistician. In the modern society.

. 2. m) units of homogeneous product and n destinations. each of which requires bj (j = 1. each of which has available. What are the common methods to obtain an initial basic feasible solution for a transportation problem whose cost and requirement table is given? Give a stepwise procedure for one of them? Answer: Transportation Problem & its basic assumption This model studies the minimization of the cost of transporting a commodity from a number of sources to several destinations.. What are the properties of a game? Explain the “best strategy” on the basis of minmax criterion of optimality. Formulation of Transportation Problem The standard mathematical model for the transportation problem is as follows. State the assumptions underlying game theory. Condition (1) The condition (1) is guaranteed by creating either a fictitious destination with a demand equal to the surplus if total demand is less than the total supply or a (dummy) source with a supply equal to the shortage if total demand exceeds total supply. b. Let xij be number of units of the homogenous product to be transported from source i to the destination j Then objective is to Theorem: A necessary and sufficient condition for the existence of a feasible solution to the transportation problem (2) is that Q3. The transportation problem involves m sources. It is assumed that the total supply and the total demand are equal . 4 . The cost cij of transporting one unit of the product from the ith source to the jth destination is given for each i and j. a. n) units of products.i.e. The cost of transportation from the fictitious destination to all sources and from all destinations to the fictitious sources are assumed to be zero so that total cost of transportation will remain the same. i (i = 1.Q2. Here a i and bj are positive integers.. Discuss its importance to business decisions. The objective is to develop an integral transportation schedule that meets all demands from the inventory at a minimum total transportation cost. The supply at each source and the demand at each destination are known. …. 2….

covering both the cases where players take alternate moves and those where they make simultaneous moves. In zero-sum games. Example The following example of a zero-sum game. Then. The name minimax arises because each player minimizes the maximum payoff possible for the other—since the game is zero-sum. the minimax choice for A is A2 since the worst possible result is then having to pay 1. statistics and philosophy for minimizing the possible loss while maximizing the potential gain. where A and B make simultaneous moves. However. since if B believes A will choose A2 then will choose B1 to gain 1. the best payoff possible for player 1 is V. B can ensure an expected B chooses B1B chooses B2B chooses B3A chooses A1+3 −2 +2A chooses A2−1 0 5 . Player 1′s strategy guarantees him a payoff of V regardless of Player 2′s strategy. Alternatively. the best payoff possible for player 2 is −V. then if A believes B will choose B1 then will choose A1 to gain 3. Assume the payoff matrix for B is the same matrix with the signs reversed (i. [2]See Scion‘s minimax theorem and Parthasarathy‘s theorem for generalizations. Equivalently. This theorem was established by John von Neumann. it can be thought of as maximizing the minimum gain (maxim in). Suppose each player has three choices and consider the payoff matrix for A displayed at right. and then will choose B2. illustrates minimax solutions. he also maximizes his own minimum payoff. no matter what B chooses. there exists a value V and a mixed strategy for each player. the minima solution is the same as the Nash equilibrium. So a more stable strategy is needed. [1] Who is quoted as saying ―As far as I can see. there could be no theory of games … without that theorem … I thought there was nothing worth publishing until the Minimax Theorem was proved‖. Minimax theorem The minimax theorem states: For every two-person. game theory.Answer: a) Minimax (sometimes minmax) is a decision rule used indecision theory. zero-sum game with finitely many strategies. no matter what A chooses. and similarly Player 2 can guarantee himself a payoff of −V. B will not choose B3 since some mixtures of B1 and B2 will produce a better result. and eventually both players will realize the difficulty of making a choice. such that (a) Given player 2′s strategy. if the choices are A1 and B1 then B pays 3 to A). see also example of a game without a value. while the simple minimax choice for B is B2 since the worst possible result is then no payment.e. A can avoid having to make an expected payment of more than 1/3 by choosing A1 with probability 1/6 and A2 with probability 5/6. it has also been extended to more complex games and to general decision making in the presence of uncertainty. no matter what B chooses. Game theory In the theory of simultaneous games. and (b) Given player 1′s strategy. Some choices are dominated by others and can be eliminated: will not choose A3 since either A1 or A2 will produce a better result. this solution is not stable. Originally formulated for two-player zero-sum game theory. a minima strategy is a mixed strategy which is part of the solution to a zero-sum game.

The biggest factor that both of these articles have in common is how crucial it is for managers to understand everything they can about their business and the environment in which they work. then they do not have to worry so much about their competitors trying to counter their moves. In 1994. Finally. the authors discuss how in order for companies to be able to change the environment or rules under which they compete they need to understand everything they can about the constructs under which they are competing. If companies are able to develop a system where they can make both themselves and their competitors better off. Also. the work shown in 6 . For example. because companies can easily copy each other‘s ideas. At the end of ―The Right Game: Use Game Theory to Shape Strategy‖. but made sure that the competitors understood that they had no intention of capturing more than 10% of any market. and both papers were able to raise their prices and not lose revenue. the bank can try to charge a higher commission as long as the client does not develop a more realistic appraisal of the company‘s value. This example shows how companies can think outside the box to change the way competition takes place in their industry. a small company can often participate in the same market without having to compete with larger companies on unfavorable terms. This can be accomplished either by making things clearer or more uncertain. It took Nintendo 2 years to respond with its own 16-bit system. Changing the rules is another way in which companies can benefit. which is not usually possible under the traditional win-lose structure. This article has some parallels with the article ―Competing on Analytics‖ by (). which gave Sega the opportunity to capture market share and build a strong brand image. However. it changed the game by introducing a new 16-bit system. where a large company may be willing to allow a smaller company to capture a small market share rather than compete by lowering its prices. Whether a manager intends to use analytics or game theory to be successful. The New York Post had to make its intentions clear. it is to a firm‘s advantage if they can benefit when their competitors copy their idea. The authors introduce the idea of judo economics. However. Companies can also change perceptions to make themselves better off. As long as it does not become too powerful or greedy.+4A chooses A3−4 −3 +1 wouldn‘t have to pay as much to license these characters. The authors also show an example of how investment banks can maintain ambiguity to benefit themselves. the New York Post attempted to make radical price changes in order to get the Daily News to raise its price to regain subscribers. and sometimes respond in a way that benefits both themselves and the competition. Kiwi International Air Lines introduced services on its carriers that were of lower prices to get market share. Brandenburger and Nalebuff have illustrated how companies that recognize they can change the rules of competition can vastly improve their odds of success. the Daily News misunderstood and both newspapers were headed for a price war. companies can change the boundaries within which they compete. when Sega was unable to gain market share from Nintendo‘s 8-bit systems. If the client is more optimistic than the investment bank. the authors say that it is important to be familiar with this information so that managers can change the way they compete to improve their chances of success. he or she must first have all available information and use that information to understand how to make the company better off. In ―Competing on Analytics‖.

Compare CPM and PERT explaining similarities and mentioning where they mainly differ. the entities are nodes. Tensions of both PERT and CPM allow the user to manage other resources in addition to time and money. and to balance the use of resources. Graph Theory 7 . to analyze different types of schedules. a. This tool is basically a tool for planning CPM also allows and explicit estimate of and control of time. ―The Right Game‖. often yielding a much broader impact. to trade off resources. however focuses more on using information to find creative ways of changing the constructs or rules applied between companies. Extensions of both PERT and CPM allow the user to manage other resources in addition to time and money. The probability factor I major in PERT The deterministic factor is more so values or so outcomes may not be exact. to trade off resources. networks are called graphs. and the links are edges _ Graph theory starts in the 18th century. PERT is more suitable for R&D related CPM is best suited for routine and those projects where the project is performed for projects where time and cost estimates can the first time and the estimate of duration be accurately calculated are uncertain.―Competing on Analytics‖ tends to place an emphasis almost exclusively on the use of quantitative data to improve efficiency or market share of the company. Costs in addition to time. Outcomes are generally accurate and realistic. to analyze different types of schedules. with Leonhard Euler _ The problem of Konigsberg bridges _ Since then graphs have been studied extensively. Graphs _ In mathematics. with only single Estimating the duration for completion of estimate of duration. Q4. Answer: The Major Differences and Similarities between CPM and PERTCPM (Critical Path Method) & PERT (Program Evaluation and Review Technique) 1PERT is a probabilistic tool used with three CPM is a deterministic tool. and to balance the use of resources. therefore CPM can control both time and cost.

E) 2V = set of vertices E = set of edges Each edge is now an 1 3arrow. Determine: (a) Initial solution by Vogel’s approximation method. (b) Optimum basic feasible solution._ Graph G= (V. E) _ V = set of vertices _ E = set of edges 2 _ An edge is defined by the two vertices which it connects _ optionally: 1 3A direction and/or a weight _ Two vertices are adjacent if they are connected by an edge 4 5 _ A vertex‘s degree is the number of its edges Graph G= (V. not just a line ->direction The in degree of a vertex is the number of 5incoming edges 4The out degree of a vertex is the number of outgoing edges. Solution: The initial solution is found by VAM below: Factory 1 A B C D Demand Diff 7 10 box 9 11 50 box 9 60/50/0 2 2 20 box 5 11 10 10 20/0 5 3 7 10 box 6 30 box 6 9 40/10/0 0/1 Godowns 4 7 11 20 box 2 6 20/0 4 8 5 5 7 40 box 2 9 40/0 3 6 40 box 3 5 8 12 40/0 2 Availability 60/40/0 20/10/0 90/70/30/0 50/0 Diff 2/4/0 1/3 0/4/2/5 3/0 . Consider the following transportation problem: Godowns Factory A B C D Demand 1 7 9 11 9 60 2 5 11 10 10 20 3 7 6 6 9 40 4 7 11 2 6 20 5 5 2 9 40 6 3 5 8 12 40 Stock available 60 20 90 50 It is not possible to transport any quantity from factory B to Godown 5. 5.

6) and apply the optimality test. Let u3=0 and then we calculate remaining ui and vj Factory A B C D 1 7 10 box 9 11 50 box 9 9 2 20 box 5 11 10 10 7 Godowns 3 4 7 7 10 box 6 11 30 box 6 20 box 2 9 6 6 2 uj 5 5 40 box 2 9 2 6 40 box 3 E box 5 8 12 5 -2 0 0 0 vj Now we calculate 0 2 ij = Cij – (ui + vj) for non basic cells which are given in the table below: 3 7 9 4 5 ∞ 7 3 7 4 3 3 3 Since all ij are positive. 9 Value 100 120 90 60 180 40 80 450 1.The above initial solution is tested for optimality.120 . the initial solution found by VAM is an optimal solution. Since there are only 8 allocations and we require 9(m+n-1=9) allocations. The final allocations are given below: Factory to A A B B C C C D Godown 2 6 1 3 3 4 5 1 Unit 40 40 10 10 30 20 40 50 Cost 5 3 9 6 6 2 2 9 Total cost Rs. we put a small quantity in the least cost independent cell (2.

A machine operator processes five types of items on his machine each week.The above solution is not unique because the opportunity cost of cell (1.120 6. Hence alternative solution exists. The set-up cost per change depends on the item presently on the machine and the set-up to be made according to the following table: To item A A B C D E ∞ 4 7 3 4 B 4 ∞ 6 3 4 C 7 6 ∞ 7 5 D 3 3 7 ∞ 7 E 4 4 5 7 ∞ From Item If he processes each type of item once and only once each week.) Value 70 100 90 60 50 180 80 40 450 1. 2) is zero. and must choose a sequence for them. Students may find that the alternative solution is as given below: Factory to A A A B B C C C D Godown 1 2 6 3 6 3 5 4 1 Unit 10 20 30 10 10 30 40 20 50 Cost 7 5 3 6 5 6 2 2 9 Total cost (Rs. how should he sequence the items on his machine in order to minimize the total set-up cost? 10 .

So. ∞ 1 2 0 0 1 ∞ 1 0 0 3 2 ∞ 3 0 0 0 2 ∞ 3 1 1 0 4 ∞ Step 2: Note that row 2 is not assigned. 5 3 with minimum cost as Rs 20. So. go to next step (see table) ∞ 1 --2---0---0-1 ∞ --1---0---0-3 2 --∞---3---0-0 0 --2---∞---3-✔ Step 3: Subtract the lowest element from all the elements not covered by these lines and add the same with the elements at the intersection of two lines. Draw lines through all unmarked rows and marked columns. there is an assignment in the first row of 4th column. 4 2.Solution: Step 1: Reduce the cost matrix using step 1 & 2 of Hungarian algorithm and then make assignments in rows and columns having single zeros as usual. Since there is a zero in the 4th column. tick first row. Then we get the table as: ∞ 0 2 0 0 0 ∞ 1 0 0 2 1 ∞ 3 0 0 0 3 ∞ 4 0 0 0 4 ∞ 1 1 --0---4---∞-✔ ✔ The optimum assignment is 1 4. 11 . So mark ✔ to row 2. 2 1. We can find the number of lines is 4 which is less than order of the matrix. 3 5. Further.

We consider all cases separately until we get an optimal solution. we bring 1 into the solution. So. 4 2. 2 3. 2 4. 5 3. 3 2. We start with making an assignment at (2. 5). The resulting assignment schedule is 1 4. 2) instead of zero assignment at (3. 3 5. 3) instead of zero assignment at (2. So. Next we try to find the next best solution which satisfies this restriction. The next minimum (non-zero) element in the cost matrix is 1. without passing through 3 and 5. the resulting assignment schedule is 1 5. 5 1 When an assignment is made at (3. 1). Optimum Assignment is: AE C B D A AE = 4 EC = 5 CB = 6 BD = 3 DA = 3 Total cost = 21 12 .This assignment schedule does not provide us the solution of the travelling salesman problems as it gives 1 4. But the element ‗1‘ occurs at two places. 4 1 The total set-up cost in both the cases is 21. 4 2. 2 1.

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