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Characteristics & assumptions of transportation problem

transportation problem in general are concerned with distributing any commodity from any group of supply centers, called sources, to any group of receiving centers, called destinations, in such a way as to minimize the total distribution cost. Assumptions: Requirement assumption: each source has a fixed supply of units, where this entire supply must be distributed to the destinations. similarly, each destination has a fixed demand for units, where this entire demand must be received from the source.
Assignment problem ASSIGNMENT PROBLEM

Characteristics & assumptions of transportation problem

Cost assumption: the cost of distributing units from any particular source to any particular destination is directly proportional to that number of units distributed.therefore,this cost is just the unit cost of distribution times the number of units distributed. The feasible solutions property: A transportation problem will have feasible solutions if and only if the sum of its supplies equals the sum of its demands.
Assignment problem ASSIGNMENT PROBLEM

Characteristics & assumptions of transportation problem

The model:

The linear programming model has constraints for supply at each source and demand at each destination. All constraints are equalities in a balanced transportation model where supply equals demand. Constraints contain inequalities in unbalanced models where supply does not equal demand.
Assignment problem ASSIGNMENT PROBLEM

Application of transportation problem

Shipping goods Assigning plants to product Profit maximization problem Overtime production Production scheduling

ASSIGNMENT MODEL

Difference between transportation & assignment model

Assignment model is generally made on one-to-one basis & if there are more jobs to do than can be done, one can decide which job to leave undone and what resource to add. In assignment model number of source is equal to number of destination ,supply at each source is unity(1) & demand at each destination is also unity(1), it is different from transportation problem. Unit allocated to cell is either 1 or 0 ,it is also different from transportation model However transportation algorithm is not very useful to solve this model because of degeneracy.
Assignment problem ASSIGNMENT PROBLEM

Difference between transportation & assignment model

Assignment problem is completely degenerate form of transportation model. In n*n assignment problem, there will be n assignment instead of 2n-1 assignment in transportation model. Special structure of assignment model allows a more convenient and simple method of solution than transportation model.

Structure & formulation of assignment model

Represent the assignment of n facilities to n jobs.Cij is cost of assigning ith facility to jth job and Xij represents the assignment of ith facility to jth job. If ith facility can be assigned to jth job, xij=1,otherwise 0. The objective is to make assignment that minimize the total assignment cost or maximize the total associated gain.
Assignment problem ASSIGNMENT PROBLEM

Structure & formulation of assignment model

Xij=0,if ith facility is not assigned to j th job, Xij=1, if the ith facility is assigned to jth job. Then the model is given by Minimize z=
J=1 i=1 n n n

CijXij

Subject to constraints Xij=1,i=1,2,3n(one

J=1

job is assigned to ith facility) n Xij=1,j=1,2,3,..n(one facility i=1 assign to Jth job.
Assignment problem ASSIGNMENT PROBLEM

& Xij=0 or 1.
Jobs 1 1 2 n

1

1

facilities
:

1 :

n 1

Assignment problem ASSIGNMENT PROBLEM

Hungarian method

Step 1: prepare the assignment table. Step 2: convert assignment table into balanced problem by add dummy row or column if it is not balanced problem. Step 3:convert problem into minimization problem by subtracting all the elements from the largest element if it is maximization problem. Obtain reduced cost table: (a) Subtract the minimum element in each row from all the elements of that row and then (b) Subtract the minimum element in each column from all the elements of that column.
Assignment problem ASSIGNMENT PROBLEM

Hungarian method

Step 5:Draw minimum number of lines to cover all the 0s in the table. Step 6:check the lines drawn equal to the orders of the matrix or not. if not then, subtract the smallest uncovered elements from all the uncovered elements and add it to intersection of line. keep the remaining elements unchanged & go to step 5 & then 6. Step 7:get the optimum solution.
Assignment problem ASSIGNMENT PROBLEM

EXAMPLE-TRANSPORTATION PROBLEM

A machine tool company decides to make four subassemblies through four contractors. each contractor is to receive only one sub assembly. the cost of each subassembly is determined by the bids submitted by each contractor and is show in table in hundreds of rupees.

Assignment problem ASSIGNMENT PROBLEM

EXAMPLE-TRANSPORTATION PROBLEM

Contractors
1 2 3 4

S u b a s s e m b li e s

15 11

13 12 12 17

14 15 10 14
Assignment problem ASSIGNMENT PROBLEM

17 13 11 16

13 15

EXAMPLE-TRANSPORTATION PROBLEM

Step 1: key decision is what to whom i.e. which subassembly be assigned to which contractor or what are the n optimum assignments on 1-1 basis. Step 2: Objective is to minimize the total cost involved, n n i.e., minimize z= CijXij.
i=1 J=1 Assignment problem ASSIGNMENT PROBLEM

EXAMPLE-TRANSPORTATION PROBLEM

Step III: (a) constraints on subassemblies are X11+x12+x13+x14=1 X21+x22+x23+x24=1 X31+x32+x33+x34=1 X41+x42+x43+x44=1 (b) constraints on contractors are: X11+x21+x31+x41=1 X12+x22+x32+x42=1 X13+x23+x33+x43=1 X14+x24+x34+x44=1
Assignment problem ASSIGNMENT PROBLEM

A school bus has to start from the school located at A and return after picking up children from B,C,D and E .the table below shows distances between various pick-up points on different routes.the distance from A to B is 8 KM but from B to A is 6 KM Because of one way streets and other restrictions on movement between points. as no of movement is possible from a destination to itself, these cells are marked with dash.
Assignment problem ASSIGNMENT PROBLEM

A school bus has to start from the school located at A and return after picking up children from B,C,D and E .the table below shows distances between various pick-up points on different routes.the distance from A to B is 8 KM but from B to A is 6 KM Because of one way streets and other restrictions on movement between points. as no of movement is possible from a destination to itself, these cells are marked with dash.
Assignment problem ASSIGNMENT PROBLEM

TO A A FROM B C D E 6 15 9 7 B 8 11 5 3 C 7 11 6 6 D 9 5 6 4 E 5 5 14 8 -

Assignment problem ASSIGNMENT PROBLEM

Problem with dummy row or column Five workers are available to work with five machines. the respective cost associated with each worker and machine assignment is given in the table below. a sixth machine is available to replace one of the existing machines and its associated costs are also given. (a) determine, whether the new machine can be accepted. (b) determine the optimal assignment and saving in cost.
Assignment problem ASSIGNMENT PROBLEM

Maximization problem

A company has a team of four salesmen and there are four districts where the company wants to start its business. after taking into account the capabilities of salesman and the nature of district, the company estimates that the profit per day in rupees for each salesman in each district is as below.
Assignment problem ASSIGNMENT PROBLEM

Maximization problem
DISTRICT

SALESMAN

A B

C D

1 16 14 15 13

2 10 11 15 12

3 14 15 13 14

4 11 15 12 15

Find the assignment of salesmen to various district which will yield maximum profit?

Assignment problem ASSIGNMENT PROBLEM

Maximization problem-2

A small garment making unit has five tailors switching five different types of garments. the output per day per tailor and the profit for each type of garment are given below garments

tailors

7 4 8 6 7 2

9 9 5 5 8 3

4 5 2 8 10 2

8 7 9 10 9 3

6 8 8 10 9 4

Assignment problem ASSIGNMENT PROBLEM

Maximization problem-2

1. Which type of garment should be assigned to which tailor in order to maximize profit, assuming that there are no other constraints? 2. If tailor D is absent for a specified period and no other substitute tailor is available, what should be the optimal assignment?

Decision theory approach

Consider a manufacturing company that is thinking of several alternative methods to increase its production to meet the increase market demand. step 1:list all the viable alternatives 1.expand the present plant 2.construct the new plant 3.subcontract production for extra demand. these alternatives term as course of actions or simply actions or strategies.
Assignment DECISIONproblem THEORY

Decision theory approach

step 2:identify the expected future event List all the future event they may occur. but it is very tough to identifying that particularly which event will occur. These future events are termed as state of nature In our example state of nature are - high demand - moderate demand - Low demand - no demand

Decision theory approach

step 3:construct pay off table or conditional gain or profit table Make a pay off table for each possible combination of alternative course of action and state of nature. ALTERNATIVES HIGH EXPAND CONSTRUCT SUBCONTRACT Rs.50000 70000 30000 STATE OF NATURE MODERATE Rs.25000 30000 15000 LOW -25000 -40000 -1000 NIL -45000 -80000 -10000

Decision theory approach

Step 4 : select optimum decision criterion

Finally the decision-maker will choose criterion which results in largest payoff. the criterion may be economic, quantitative or qualitativeetc.

Decision making environment

decision-making under conditions of certainty. decision-making under conditions of uncertainty. decision-making under conditions of risk.

Decision making under condition of certainty

- in this environment, only one state of nature exists for each alternative i.e., there is complete certainty about the future. it is easy to analyze the situation and make good decisions. - Decision-maker has perfect knowledge about the future outcomes, he simply choose the alternative having optimum pay-off.

Decision making under condition of certainty

EXAMPLE:A company can manufacture two different products k1 and k2.the two products have to be processed through two machines M1 & M2 whose available capacities in terms of hours per week are 480 and 410 respectively. product k1 need 3 hours of M1 and 1 hour of M2 and product K2 requires 1 hour of M1 and 2 hours of M2. find the number of units of products K1 & K2 that can be manufactured every week by utilizing fully the available capacities of the machine. PRODUCT TIMES AVAILABILITY 3 1 1 2 480 410
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MACHINES M1 M2

Decision making under condition of certainty

Let x be the number of units of k1 and y be the number of units k2 that can be manufactured. then, as per the given data we have the following simultaneous equation: 3x+y=480 X+2y=410 Solving we get x=110,y=150 Therefore 110 units of product k1 and 150 units of product k2 can be manufactured.

Decision making under condition of certainty

Example: Linear programming when resources required, resources available, cost or profit per unit of the product are know with certainty.

Decision making under condition of uncertainty

Here, more than one states of nature exist but the decision-maker lacks sufficient knowledge to allow him assign probabilities to the various states of nature. Under conditions of uncertainty, a few decision criteria are available which could be of help to the decisionmaker and a choice among them is determined by the companys policy and attitude of the decision maker.

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ALTERNATIVES HIGH EXPAND CONSTRUCT SUBCONTRACT Rs.50000 70000 30000

STATE OF NATURE MODERATE Rs.25000 30000 15000 LOW -Rs.25000 -40000 -1000 NIL -Rs.45000 -80000 -10000

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Maximum of rows

50000
70000

30000

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Maximax criterion or criterion of optimism

When dealing with costs ,the minimum of each alternative is considered and the alternative which minimizes the above minimum costs is selected. this is called minimin criterion.

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Maximin criterion or criterion of pessimism or wald criterion

To use this criterion, the decision-maker maximizes his minimum possible payoffs. ALTERNATIVES HIGH EXPAND CONSTRUCT SUBCONTRACT Rs.50000 70000 30000 STATE OF NATURE MODERATE Rs.25000 30000 15000 LOW -Rs.25000 -40000 -1000 NIL -Rs.45000 -80000 -10000

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Minimum of rows

-45000
-80000 -10000

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Minimax regret criterion or savage criterion

This criterion developed by L.J.Savage. Minimize our maximum regret. ALTERNATIVES HIGH EXPAND CONSTRUCT SUBCONTRACT Rs.20000 0 40000 STATE OF NATURE MODERATE Rs.5000 0 15000 LOW Rs.24000 39000 0 NIL 35000 70000 0

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Minimax regret criterion or savage criterion

Maximum of row

35000
70000 40000
Assignment problem DECISION THEORY

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Hurwicz criterion (criterion of Realism)

Hurwicz criterion (criterion of Realism) This is also called as a weighted average criterion This concept allow decision maker to take into account both the maximum and minimum for each alternative and assign them weights according to his degree of optimism. =degree of optimism

1-=degree of pessimism here is called coefficient or index of optimism

Assignment problem DECISION THEORY

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Hurwicz criterion (criterion of Realism)

Step 1:choose appropriate degree of optimism Step 2:Determine the maximum as well as minimum of each alternative and obtain P=.maximum+(1-).minimum

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maximum of row

minimum of row

-45000 -80000 -10000

Assignment problem DECISION THEORY

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Laplace Criterion or Criterion of Rationality

This criterion assigns equal probabilities to all the events of each alternative decision and selects the alternative associated with the maximum expected payoff. If n denotes the number of events and Ps denote the payoffs, then expected value for strategy, say S1 is 1/n[p1+p2++Pn].
Assignment problem DECISION THEORY

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Realism or hurwicz criterion

Expected payoff
1000/4[50+25-25-45]=-1250

-5000 85000

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Decision making under conditions of risk

Most business decisions may have to be made under conditions of risk. here more than one states of nature exist and the decision-maker has sufficient information to assign probabilities to each of these states.

These probabilities could be obtained from the past records or from simply the subjective judgment

Assignment problem DECISION THEORY

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Expected monetary value or expected value criterion This criterion requires the calculation of the expected value of each decision alternative which is the sum of the weighted payoffs for that alternative ,where the weights are the probabilities assigned to the states of nature that can happen. Step 1: construct a conditional payoff table listing the alternative decisions and the various states of nature. Enter the conditional profit for each decision-event combination along with the associated probabilities. Step 2: calculate the EMV for each decision alternative by multiplying the conditional profits by assigned probabilities and adding the resulting conditional values. Step 3: select alternatives that yields the highest EMV.
Assignment problem DECISION THEORY

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Expected monetary value or expected value criterion

A news paper boy has the following probabilities of selling a magazine: No. of copies sold probabilities 10 .10 11 .15 12 .20 13 .25 14 .30 Cost of a copy is 30 paise and sale price is 50 paise.he cannot return unsold copies.how many copies should he order?
Assignment problem DECISION THEORY

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Expected monetary value or expected value criterion

Conditional profit table
possible stock action possible demand (no. of copies) 10 11 12 0.1 0.15 0.2 probabilities 10 copies 200 200 200 11 12 13 14 copies copies copies copies 170 220 220 140 190 240 110 160 210 80 130 180

13
14

0.25
0.3

200
200

220
220

240
240

260
260

230
280

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Expected monetary value or expected value criterion

Expected profit table
possible demand (no. of copies) 10 11 12 13 0.1 0.15 0.2 0.25 probabilities possible stock action 10 11 12 13 14 copies copies copies copies copies 20 30 40 50 17 33 44 55 14 28.5 48 60 11 24 42 65 8 19.5 36 57.5

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total expected profit

0.3

60

66

72

78

84

200

215

222.5

220

205
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Expected monetary value or expected value criterion

The newsboy must, therefore, order 12 copies to earn the highest possible average daily profit of 222.5 paise

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Expected opportunity loss criterion

An alternative approach is to minimize expected opportunity loss. Step 1:prepare the conditional profit table for each decision event combination and write the associated probabilities. Step 2:for each event, determine the conditional opportunity loss by subtracting the pay off from the maximum payoff for that event. Step 3:clculate EOL for each decision alternative by multiplying the COLs by the associated probabilities and then adding the values. Step 4;select the alternative that yields the lowest EOL.

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Expected opportunity loss criterion

conditional profit table

probabilities

80 130 180

13
14

0.25
0.3

200
200

220
220

240
240

260
260

230
280

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Expected opportunity loss criterion

conditional LOSS TABLE

probabilities

possible stock action

10 11 12 13 14 copies copies copies copies copies

10 11 12 13 14

0 20 40 60 80

30 0 20 40 60

60 30 0 20 40

90 60 30 0 20

120 90 60 30 0

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Expected opportunity loss criterion

EXPECTED LOSS TABLE

probabilities

10 11 12

0 3 8

3 0 4

6 4.5 0

9 9 6

12 13.5 12

13
14

0.25
0.3 EOL

15
24 50

10
18 35

5
12 27.5

0
6 30

7.5
0 45
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Expected opportunity loss criterion

THE OPTIMUM STOCK ACTION IS THE ONE WHICH WILL MINIMIZE EXPECTED OPPORTUNITY LOSSES;THIS ACTION CALLS FOR THE STOCKING OF 12 COPIES EACH DAY,AT WHICH POINT THERE IS MINIMUM EXPECTED LOSS OF 27.5 PAISE.

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EXPECTED VALUE OF PERFECT INFORMETION

CONDITIONAL PROFIT TABLE UNDER CERTAINTY

possible demand

10 11 12 13 14

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EXPECTED VALUE OF PERFECT INFORMETION

EXPECTED PROFIT TABLE WITH PERFECT INFORMATION

market size
(no. of copies 10 11 12 13 14

probability of market size

expected profit
with perfect information

0.1 0.15 0.2 0.25 0.3

20 33 48 65 84 EPPI=250

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EMV for item that have selvage value

An ice-cream retailer buys ice cream at a cost of Rs.5 per cup and sells it for Rs. 8 per cup; any remaining unsold at the end of the day can be disposed of at a salvage price of Rs.2 per cup. past sales have ranged between 15 and 18 cups per day; there is no reason to believe that sales volume will take on any other magnitude in future. find the EMV if the sale history has the following probabilities: Market size: 15 16 17 18 Probability: 0.1 0.2 0.4 0.3

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EMV for item that have selvage value

If CP denotes conditional profit. S the quantity in stock and D the market demand, then CP=(8-5)S,WHEN D=>S AND CP=8D-5S+2(S-D),WHEN D<S

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EMV for item that have selvage value

Conditional profit table Possible demand (event)
probabilities

15 15 0.1 45

16 42

18 36

16
17 18

0.2
0.4 0.3

45
45 45

48
48 48

42
48 54

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EMV for item that have selvage value

EXPECTED PROFIT TABLE

possible demand (event) 15 16 17 18 EMV

probabilities 15
0.1 0.2 0.4 0.3 4.5 9 18 13.5 45

possible stock action (alternative)

16
4.2 9.6 19.2 14.4 47.4

17
3.9 9 20.4 15.3 48.6

18
3.6 8.4 19.2 16.2 47.4

Assignment problem DECISION THEORY

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Example

GM of calcutta motor is planning staffing of the dealershipps garage facilities in Ahmedabad. from information provided by the manufacturer and from other nearby dealership, he has estimated the number of annual mechanic hours that the garage will be likely to needed Hours 10000 12000 14000 16000 Probability 0.15 0 .25 0.4 0.2 The manager plans to pay each mechanic Rs.9 per hour and to charge customer Rs.16. mechanics will work a 40 hours per week and get an annual 2 week vacation. Determine how many mechanics Calcutta motor should hire? Calculate EOL and EVPI also?
Assignment problem DECISION THEORY

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DECISION TREES

The decision problems discussed so far with only single stage decision making. we now consider situations that involve multiple stages. they are characterized by a sequence of decision with each decision influencing the next. such problems, called sequential decision problems, are analyzed best with the help of decision trees.
Assignment problem DECISION THEORY

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DECISION TREES

A client asks an estate agent to sell three properties A,B and c for him and agrees to pay him 5% commission on each sale. he specifies certain conditions. the estate agent must sell property A first, and this he must do within 60 days. if and when A is sold, the agent receives his 5% commission on that sale. he can then either back out at this stage or nominate and try to sell one of the remaining two properties within 60 days. if he does not succeed in selling the nominated property in that period, he is not given the opportunity to sell the other. if he does sell it in the period, he is given the opportunity to sell the third property on the same conditions. The following table summarizes the prices, selling cost and the estate agents estimated probability of making a sale.
Assignment problem DECISION THEORY

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DECISION TREES

Property

A B
C

Assignment problem DECISION THEORY

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DECISION TREES
Mr Sinha had to decide whether or not to drill a well on his farm. in his village, only 40% of the wells drilled were successful at 200 feet of depth. some of the farmers who did not get water at 200 feet, drilled further upto 250 feet but only 20% struck water at 250 feet. cost of drilling is Rs.50 per foot. Mr. Sinha estimated that he would pay Rs.18,000 during a 5year period in the present value terms, if he continues to buy water from the neighbor rather than go for the well which would have a life of 5 years. Mr. Sinha has three decision to make:(a)should he drill up to 200 feet and (b) if no water is found at 200 feet, should he drill up to 250 feet?(c) should he continue to buy water from his neighbor?

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Posterior probabilities and bayesian analysis

In a preceding analysis of decision making under

probabilities used in the expected value criterion are usually obtained from the past historical data. these probabilities are called prior probabilities and the analysis that uses them to find expected payoffs is known as prior analysis. If the prior analysis results in high expected opportunity loss (EOL) or EVPI,it may be desirable to obtain additional information through sampling or experimentation or test research. prior probabilities may then be revised in the light of this additional information by using bayes theorem to yield posterior probabilities or bayes probabilities. Revised analysis of the problem using these probabilities is called posterior analysis or bayesian analysis. this analysis gives a revised value of EMV which is expected to be better than the EMV based on prior Assignment problem DECISION THEORY analysis. the difference between the two should at least be equal to the 45

UTILITY THEORY
Think about the situation in which you have two option:(1)Get 10000 rupees fix (2)5% chance of getting Rs.250000 and 95% chance of getting nothing

What is your answer? The worth of money is different for different people and is also different in different situations. Each rupee is not equally valuable to an individual. The determination of utility is subjective.it depends upon our attitude of accepting risk.

The utility theory approach attempts to determine a utility function or a utility curve for a decision maker.

Assignment problem DECISION THEORY

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UTILITY THEORY

Here function converts money into an arbitary utility measure. Risk avoider: slope decrease as money values increase. firm with unsound finansial position. Risk neutral:expected utility give the same results as expected return(EMV) analysis. EXAMPLE:LARGE COMPANIES & GOVERNMENT. Risk taker:curve increase faster than the money value. In practice utility curve is a combinetion of risk taker and risk avoider

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UNBALANCED ASSIGNMENT PROBLEM

You are given the information about the cost of performing different jobs by different persons. the job-person marking (@) indicates that the individual involved cannot perform the particular job. using this information, state (i) the optimal assignment of jobs, and (ii) the cost of such assignment
Assignment problem

Traveling salesman problems

Mr Patel is a salesman with Delite Manufecturing company. he wants to visit six cities, say, 1,2,3,4,5 and 6,starting with city 1where he is stationed. the distances between various cities are given in the table.Patel wants to develop a tour through the five other cities and return to his home city in such a way that he was to travel a minimum distance.
Assignment problem