A unit of REAlWAVes (P) Ltd

MBA CLASSES
IInd Semester
Applied
Operations Research
Dear Student,
Welcome to the World of Knowledge – REAL WAVES

I have the pleasure of presenting this study material to

you. It contains exhaustive practical and Theory. It covers all
the aspects which will bring in to focus all important
concepts that you need to study in order to fortify yourself
for your examination. The subject will be taught by eminent
professor who are highly experienced and well versed with
the job.
The Institute is very exhaustive and wholly concept
based. Also, the Institute is very systematic, well planned
and absolutely time- bound. For a change, say good bye to
mechanical learning. I am sure you will feel that the study is
a pleasurable job and not a painful exercise.

I wish you a very happy study time.

BEST OF LUCK!

PUNEET MORE
Director
 Unit-I: Introduction to Linear Programming (LP)
Introduction to Applications of Operations Research in Functional Areas of
Management. Linear Programming-Formulation, Solution by Graphical and
Simplex Methods (Primal - Penalty, Two Phase), Special Cases. Dual Simplex
Method. Principles of Duality. Sensitivity Analysis.

Unit-II: Linear Programming Extensions

Transportation Models (Minimising and Maximising Problems) – Balanced and
Unbalanced Problems – Initial Basic Feasible Solution by N-W Corner Rule, Least
Cost and Vogel’s Approximation Methods. Check for Optimality. Solution by
MODI/Stepping Stone Method. Case of Degeneracy. Transhipment Models.
Assignment Models (Minimising and Maximising Problems) – Balanced and
Unbalanced Problems. Solution by Hungarian and Branch and Bound Algorithms.
Travelling Salesman Problem. Crew Assignment Models.

Unit-III: Integer Programming and Game Theory

Solution to Pure and Mixed Integer Programming Problem by Branch and Bound
and Cutting Plane Algorithms. Game Theory-Two Person Zero Sum Games-Saddle
Point, Dominance Rule, Convex Linear Combination (Averages), Methods of
Matrices, Graphical and LP Solutions.

UNIT-IV: Inventory Models, Simulation and Decision Theory

Inventory Models – EOQ and EBQ Models (With and Without Shortages),
Quantity Discount Models. Decision Making Under Risk – Decision Trees –
Decision Making under Uncertainty. Monte-Carlo Simulation.

Unit-V: Queuing Theory and Replacement Models

Queuing Theory - Single and Multi-Channel Models – Infinite Number of
Customers and Infinite Calling Source. Replacement Models-Individuals
Replacement Models (With and without Time Value of Money) – Group
Replacement Models
 PAGE
SR NAME OF CHAPTER
No. No.
Chapter 1:Introduction 1
Chapter 2:Linear Programming 9
Chapter 3:Transportation 29
Chapter 4:Assignment 38
Chapter 5:Game Theory 47

 Chapter 6:Inventory 62
Chapter 7:Simulation 71
Chapter 8:Decision Theory 80
Chapter 9:Queuing Theory 96
Chapter 10:Replacement Theory 101
Exam Papers 103


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 9

A unit of Realwaves (P) Ltd Liner Programming

CHAPTER 2 LINEAR PROGRAMMING

The term ‘programming’ means planning and it refers to a particular plan of action among several
alternatives for maximizing profit or minimizing cost etc. linear programming problems deals with
determining optimal allocation of limited resources to meet the given objectives, such as least cost,
maximum profit, least time, when resources have alternative uses.
Q1 Write short notes on Applications of Linear Programming Techniques.
Answer:
Applications of Linear Programming Techniques:
• Agricultural application.
• Industrial application like production planning, product mix, blending, trim applications etc.
• Operational scheduling applications- flight scheduling applications.
• Product, distribution—transport application.
Financial application—investment portfolio.
Marketing application—advertising mix problem.
Administrative application.

Q2 Enumerate the industrial applications of linear programming.

Answer:
The industrial applications of linear programming are :
 Product mix problems
 Production scheduling
 Blending problems
 Transportation and distribution problems.

Year 2011
Q3 Limitations of linear programming problem.
Answer:
Important limitations of linear programming problems are as follows:
(i) A primary assumption of linear programming is that the objective function and every constraint
function must be linear. This requires that the measure of effectiveness and resource usage must be
proportional to the level of each activity conducted. However, programming problems which are non-
linear arise quite frequently.
(ii) It may not be possible to solve those problems using linear programming, in which non-linearity
arises because of joint interactions between some of the activities regarding the total measure of
effectiveness or total usage of some resource. Hence linear programming problem requires that the
total measure of effectiveness and total resource usage resulting from the joint performance of the
activities must equal the respective sums of these quantities resulting from each activity being
performed individually.
(iii) In linear programming problem, fractional values are permitted for the decisions variables.
However, many decision problems require that the solution for decision variable should be obtained in
non-fractional values. Rounding-off the values obtained by linear programming techniques may not
result into an optional solution in such cases.
(iv) In linear programming problem, coefficients in the objective function and the constraint equations
must be completely known and they should not change during the period of study i.e. they should be
2.1
 10

A unit of Realwaves (P) Ltd Liner Programming

known constraints. In practical situation, it may not be possible to state all coefficients in the objective
function and constraints with certainity. Furthermore, these coefficients may actually be random
variables, each with an underlying probability distribution for the values. Such problems cannot be
solved using linear programming.

Year 2013
Q4 Distinguish between a slack variable and an artificial variable in linear programming.
Basis Slack Variable Artificial Variable

Meaning In order to convert every constraint In order to convert every

of the type 'less than equal to' into constraints of the type "greater
an equality constraint so as to than equal to' into an equality
arrive at a solution of LPP, we add constraint so as to arrive at a
a variable to each of such solution of LPP, we first subtract a
constraint. This variable is known surplus variable and then add a
as slack variable. variable. This variable is known as
artificial variable.
Example Constraint 2x1 + 3x2 < 600. Constraint 3x1 + 5x2 > 300.
Can be written as 2x1 +3x2 + S1 = Can be written as 3x1 + 5x2- S1 +
600 A1 = 400. Here A, is the artificial
Here S1 is a slack variable. variable and S1 the surplus
variable.

Year 2013
Q5 Write short note on the characteristics of the dual problem
Answer:
Characteristic of the dual problem:
(i) For any linear programming model called primal model, there exists a companion model called the
dual model.
(ii) The number of constraints in the primal model equals the number of variables in the dual model.
(iii) The number of variables in the primal model equals the number of constraints in the dual model.
(iv) If the primal model has a maximization objective then the dual model will have a minimization
objective and vice-versa. Inequalities get reversed.
(v) The solution of the primal model yields the solution of the dual model, Also an optimal simplex
table for the dual model yields the optimal solution to the primal model. Further, the objective
functions of the two optimal tables will have identical values.
(vi) Dual of the dual problem is the original primal itself.
(vii) Feasible solutions to a primal and dual problem are both optimal if the complementary slackness
conditions hold. If this relationship does not hold either the primal solution or the dual solution or both
are not optimal.
(viii) If the primal problem has no optimal solution due to infeasibility, then the dual problem will
have no optimal solution due to unboundedness.
(ix) If primal has no optimal solution due to unboundedness, than the dual will have no optimal
solution due to infeasibility.
2.2
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A unit of Realwaves (P) Ltd Liner Programming

Simplex method [more than two variable]
Graphical method [this method is use only when there is two variable x, y]

SIMPLEX METHOD
Q1 Maximize Z = 3000x1 + 2000x2
5x1 + 2x2  180
3x1 + 3x2  135
Where x1, x2  0

Ans: x1 = 30, x2 = 15 Max Z = 120000

Q2 Maximize Z = 2x1 + x2
3x1 + 5x2  15
6x1 + 2x2  24
Where x1, x2  0

Ans: x1 = 15/4, x2 = 3/4 Max Z = 33/4

Q3 Maximize Z = 1000x1 + 850x2

x1 + x2  11
6x1 + 5x2  60
x1  0, x2  0

Ans: x1 = 5, x2 = 6 Max Z = 10100

Q4 Maximize Z = 100x1 + 60x2 + 40x3

Subjected to x1 + x2 + x3  100
10x1 + 4x2 + 5x3  600
2x1 + 2x2 + 6x3  300
Where x1, x2, x3  0

Ans: x1 = 100/3, x2 = 200/3, x3 = 0 Max Z = 22000/3

Q5 Maximize Z = 3x1 + 4x2 + 6x3

4x1 + x2 + 6x3  960
5x1 + 3x2 + x3  640
x1 + 2x2 + 3x3  320
Where x1, x2, x3  0

Ans: x1 = 800/7, x2 = 0, x3 = 480/7 Max Z = 5280/7

2.3
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A unit of Realwaves (P) Ltd Liner Programming

TWO PHASE METHOD

Q1 Minimize Z = 40x1 + 60x2
x1 + 3x2  60
2x1 + 2x2  50
Where x1, x2  0

Ans: x1 = 15/2, x2 = 35/2, Min Z = 1350

Q2 Minimize Z = x1 + x2
2x1 + x2  4
x1 + 7x2  7
Where x1, x2  0

Ans: x1 = 21/13, x2 = 10/13, Min Z = 31/13

BIG M METHOD
Q1 Minimize Z = 3x1 + 2.5x2
2x1 + 4x2  40
3x1 + 2x2  50
Where x1, x2  0
Ans: x1 = 15, x2 = 5/2, Min Z = 51.25

Q2 Minimize Z = 1.5x1 + 2.5x2

x1 + 3x2  3
x1 + x2  2
Where x1, x2  0

Ans: x1 = 3/2, x2 = 1/2, Min Z = 7/2

Q3 Minimize Z = 5x1 + 2x2

3x1 + x2 = 4
2x1 + x2  3
Where x1, x2  0

Ans: x1 = 1, x2 = 1, Min Z = 7

Q4 Maximize Z = 5x1 – 2x2 + 3x3

2x1 + 2x2 – x3  2
3x1 – 4x2  3
x2 + 3x3  5
Where x1, x2, x3  0

2.4
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A unit of Realwaves (P) Ltd Liner Programming

Ans: x1 = 23/2, x2 = 5, x3 = 0 Max Z = 95/2

DUALITY METHOD

Convert into dual

Q1 Maximize Z = 5x1 + 3x2
x1 +x2  2
5x1 + 2x2 10
3x1 + 3x2 12
Where x1, x2  0

Ans: Min Z = 2W1 + 10W2 + 12W3

W1 + 5W2 + 3W3  5
W1 + 2W2 + 8W3  3
W1, W2, W3  0

Q2 Minimize Z = 5x1 – 6x2 + 4x3

3x1 + 4x2 + 6x3  9
x1 + 3x2 + 2x3  5
-7x1 + 2x2 + x3  -10
x1 – 2x2 + 4x3  4
2x1 + 5x2 – 3x3  3
Where x1, x2, x3  0

Ans: Max Z = 9W1 + 5W2 – 10W3 + 4W4 + 3W5

3W1 + W2 – 7W3 + W4 + 2W5  5
4W1 + 3W2 + 2W3 – 2W4 + 5W5  -6
6W1 + 2W2 + W3 + 4W4 – 3W5  4
W1, W2, W3, W4, W5  0

Q3 Maximize Z = 3x1 + 4x2

Subject to 2x1 + 3x2  16
5x1 + 2x2  20
Where x1, x2  0

Ans: Min Z = 16W1– 20W2

2W1 – 5W2  3
3W1 – 2W2  4
W1, W2,  0

Q4 Maximize Z = 5x1 + 10x2

2x1 – 3x2  7
x1 + 2x2 = 4
Where x1, x2  0

2.5
 14

A unit of Realwaves (P) Ltd Liner Programming

Ans: Max Z = 5x1 + 10x2

2x1 – 3x2  7
-x 1– 2x2  - 4
x1 + 2x2  4
x1, x2  0

LINEAR PROGRAMMING (GRAPHICAL METHOD)

Q1 A furniture dealer makes two products chairs and tables. Processing of these products is done on
two machines A and B. A chair requires 3 hrs on machine A and 5 hrs on machine B. a table requires 5
hrs on machine A and 2 hrs on machine B. there are 15 hrs of time per day available on machine a and
10 hrs on machine B. profit gained by the manufacture from chair and table are ` 5 and 3 respectively.
The manufacture is willing to know the daily production of the two products to maximize profit.
Ans: x = 20/19, y = 45/19 max profit = 235/19

Q2 A factory produce two product P1 and P2. Each of the product P1 requires 1 hrs of molding, 6 hrs
for grinding and each of product P2 required 1 hrs for molding and 5 hrs for grinding. The factory has
molding machine available for 11 hrs, grinding machine for 60 hrs. The profit is ` 1000 per unit for P1
and ` 850 per unit for P2 and factory can sell all that it produces. Formulate the problem as a linear
programming problem to maximize the profit.
Ans: x = 5, y = 6 max profit = 10100

Q3 The XYZ Company has been a producer of BW and colour television picture tubes. The company
has just expanded into full scale production and marketing of BW and
colour television tubes. The company has built up a new plant that can operate 48 hours per week.
Production of BW picture tubes will require 2 hours and production of colour picture tubes will
require 3 hours. Each BW picture tube will contribute ` 40 towards profit while each colour picture
tube will contribute ` 80 towards profit. The marketing department, after extensive research, has
determined that a maximum of 15 BW and 10 colour picture tubes can be sold each week. Formulate
above as a linear programming problem to determine optimal product mix (graphical method)

Solution: Formulation:
Decision variables:
x1 = No. Of BW picture tubes
x2 = No. Of colour picture tubes

Maximize Z = 40x1 + 80x2

Subject to: 2x1 + 3x2  48
x1  15
x2  10
x1  0, x2  0

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Year 2013, 2009
Q4 A firm manufacturing two types of electrical items, A and B, can make a profit of ` 20 per unit of
A and ` 30 per unit of B. Each unit of A requires 3 motors and 2 transformers and each unit of B
requires 2 motors and 4 transformers. The total supply of these per month is restricted to 210 motors
and 300 transformers. Type B is an export model requiring a voltage stabilizer, which has a supply
restricted to 65 units per month. Formulate above as linear programming problem for maximum profit
and solve it graphically.

Solution: Let for maximum profit x units of product A and y units of product B be manufactured. The
corresponding objective equation will be
Maximize Z = 20x + 30 y

Constraint for motors: For producing x units of A, 3x motors are required and similarly for
producing y units of B, 2y motors are required. The corresponding inequality constraint for motors
will be
3x + 2y  210
Constraint for transformers: For producing x units of A, 2x transformers will be required and for
producing y units of B, 4y transformers will be required. The corresponding inequality constraint will
be
2x + 4y  300
Constraint for voltage stabilizer: The corresponding inequality constraint will be:
The mathematical model of the problem will be as follows:
Maximize Z = 20x + 30 y
Subject to 3x + 2y  210
2x + 4y  300
y  65
x, y  0
The feasible region is represented by shaded area OAMNE: The corner points of the feasible region
are O (0, 0), A (70, 0), M (30, 60), N (20, 65) and E (0, 65)

Y
O

3x + 2y = 210

O (0,75) O y = 65
N (20,65)
E (0,65) O O
O M (30, 60)

2x + 4y = 300

O O O X
O (0,0) A (70, 0) C (150, 0)
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The values of objective at different corner points is given below:
Corner X coordinate Y coordinate Value of objective
20x + 30 y = Z
O (0,0) 0 0 20x0 + 30x0 = 0
A (70, 0) 70 0 20x70 + 30x0 = 1400
M (30, 60) 30 60 20x30 + 30x60 = 2400*
N (20,65) 20 65 20x20 + 30x65 = 2350
E (0,65) 0 65 20x0 + 30x65 = 1950

* The maximum value of the objective is ` 2400, which is at the point M (30, 60)
Therefore to get maximum profit 30 units of product A and 60 units of product B should be
manufactured. The maximum profit will be ` 2400/-

Year 2006
Q5 Old hens can be bought for `. 2.00 each but young ones cost ` 5.00 each. The old hens lay 3 eggs
per week and young one 5 eggs per week, each being worth 30 paise. A hen costs ` 1.00 per week to
feed. If a person has only ` 80.00 to spend for hens, how many of each type be purchased so that he
can get a profit of more than ` 6 per week. Assuming that the person cannot purchase more than 20
hens.

Solution: Let he purchases x1 young hens and x2 old hens. Since a young hen lay 5 eggs each week
which he can sell in 5 * .30 = ` 1.50
As rupee one is needed to feed a hen per week therefore profit contribution from each young hen per
week is 1.50 – 1 = ` 0.50. Similarly profit contribution from each old hen will be 3 * .30 – 1 = ` –0.10
per week. Therefore the objective function will be
Maximize Z = 0.5x1 – 0.10x2
Other constraints will be as follows:
Constraint for money 5x1 + 2x2  80
Constraint for space x1 + x2  20
Constraint for profit 0.50x1 – 0.10x2  6
x1  0, x2  0
Again since we want to maximize 0.5x1 – 0.10x2, therefore there is no necessity of having the
constraint 0.50x1 – 0.10x2  6. Thus the mathematical model of the problem will be:

Maximize Z = 0.50x1 – 0.10x2

Subject to 5x1 + 2x2  80
x1 + x2  20
x1  0, x2  0

Graphical representation: The bounding equation corresponding to requirements will be:

5x1 + 2x2 =80,
and x1 +x2 =20

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x2

40 (0, 40) C

A (0, 20)
20
M (40/3, 20/3)

B (20,0)
0 (16,0) D 20 x1
Drawing the bounding lines corresponding to the requirement constraints and also considering the non
- negativity conditions. The shaded area OAMD will represent the feasible region. Coordinates of the
vertices O, A, M, D and value of the objective function at these vertices are as follows:
Vertices Coordinates Value of the objective
Z = 0.5x1-0.10x2
O (0, 0) 0.50x0 - .10x0 = 0
A (0,20) 0.50x0 - .10x20 = - 2
M (40/3, 20/3) 0.50x40/3 – 0.10x20/3 = 6
D (16, 0) 0.50x16 – 0.10x0 = 8 *

From the table we see that the value of the objective function is maximum at vertex D. The solution
will be that he should purchase 16 young hens. The maximum profit will be `. 8.

Year 2005
Q6 The final product of a firm has requirement that its weight must be exactly 150 kg. The two raw
materials used in manufacturing of this product are A and B with a cost of `. 2 and `.8 per unit
respectively. Each unit of A weigh 5 kg and each unit of B weight 10 kg. At least 14 units of B and not
more than 20 units of A must be used. How much each type of raw material should be used for each
unit of the final product in order to minimize the cost?

Solution: Let to produce one unit of the final product (weighing 150 kg) x1 units of raw material A
and x2 units of raw materials B be used. Then we have: 5x1 + 10x2 = 150
Since not more than 20 units of A and at least 14 nits of B must be used, therefore we have x1  20
and x2  14
The objective equation will be:
Minimize Z = 2x1 + 8x2
Subject to 5x1 + 10x2 = 150
x1  20
x2  14
x1, x2  0
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Year 2004
Q7 A company has three operational departments (weaving, processing and packing) with capacity to
produce three different types of clothes, namely suiting, shirting and woolens, yielding the profits of `
2/-, ` 4/- and ` 3/- per meter respectively. One meter of suiting requires 3 minutes in weaving, 2
minutes in processing and 1 minute in packing. Similarly one meter of shirting requires 4 minutes in
weaving, 1 minute in processing and 3 minutes in packing, while one meter of woolen requires 3
minutes in each department. In a week total run time available is 60, 40 and 80 hours for weaving,
processing and packing departments respectively.
Formulate above as linear programming problem to find the product mix to maximize profit.

Solution: The given information can be represented in the following table:

Weaving Requirements Packing Profit

processing
Suitings 3 2 1 `2
Shirtings 4 1 3 `4
Woolen 3 3 3 `3
Hours available 60 40 80
The complete mathematical model of the given problem will be:
Maximize Z = 2x1 + 4x2 + 3x3
Subject to 3x1 + 4x2 + 3x3  3600
2x1 + x2 + 3x3  2400
x1 + 3x2 + 3x3  4800
x1  0, x2  0, x3  0

Year 2003
Q8 A person requires a certain amount of each of two vitamins A and B per day. These vitamins are
found in two different foods F1 and F2. The amount of vitamin in each of the two foods, the respective
per unit prices of each food, and daily vitamin requirements are given in the following table.
Foods
Vitamin F1 F2 Daily requirements
A 2 4 40
B 3 2 50
Per unit price ` 30 ` 25
How many units of each food must be used to fulfill the daily requirements of vitamins in the total
minimum cost. (Solve by using two phase)

Ans: x1 = 15, x2 = 5/2 min Z = 512.50

Year 2002
Q9 A company is interested in the analysis of two products, which can be made from the idle of
labour, machine and investment in this regard. It was found on investigation that the labour
requirement for the first and the second products was 2 and 3 units respectively and total available
man-hours were 24. Only product –1 require machine hour utilization of one hour per unit and at
present only 9 machines hours are available. Product – 2 required one unit of a by- product per unit
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and a daily availability of the by- product is only 6 units. According to the marketing department the
sales potential of product – 1 cannot exceed 5 units. In a competitive market. Product – 1 can be sold
at a profit of ` 3 and product – 2 at a profit of ` 5.formulate a problem as a linear programming
problem and solve it graphically and also identify the redundant constraint.

LAST YEAR QUESTIONS

Year 2013
Solve the following linear progeamming problem by simplex method:
Maximize z = 5x + 3y
Subject to 3x + 5y  15
5x + 2y 10
and x, y  0

Year 2012
Define following terms:
i) Basic variable
Ans: Basic Variable
A variable is a basic variable if it corresponds to a pivot column. Otherwise, the variable is known as a
free variable. In order to determine which variables are basic and which are free, it is necessary to row
reduce the augmented matrix to echelon form.

For example, consider the system of linear equations

x1 + 2x2 - x3 = 4
2x1 - 4x2 = 5
This system has the augmented matrix
l 2 -1 4
2 -4 0 5
Which row reduce to

1 2 -1 4
0 -8 2 -3

This last matrix is in echelon form, so we can identify the pivot positions (the locations in red) the first
and second columns are pivot columns, so variables x1 and x2 are basic variables. The third column is
not a pivot column, so x3 is a free variable. Finally, the last column is not a pivot column, so the
system is consistent.

ii) Basic solution

Ans: Basic Solution

A basic solution to equation 1 is a solution obtained by setting (n-m) variables equal to zero and
solving for the remaining m variables, provided that the determinant of the coefficients of these m
variables is none—zero. The m non-zero variables are called basic variables and (n-m) zero variables.

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amlxl + am2x2 +am3X3 +.... +amnXn  bm ...(1

iii) Slack variable

Ans: Slack Variables
These variables are included in  inequalities to convert them into equality. For example , let consider
the following equation:
a1X + a2 Y  b1

We redefine it as:
a1X + a2Y + S1 = b1
Where, S1 is the slack variable.

i.e., Slack variable = Total resource - Used resource

Slack variables are non-negative and explain the unallocated portion of the given limited resources.
These permit more comprehensive economic interpretation of the solution.

iv) Artificial variable

Ans: Artificial Variable
In many cases the constraints are a combination or ,  and = in-equations and equations. It is
observed that the introduction of surplus variables is not able to provide the initial feasible solution. To
solve the problem artificial variables are introduced.

The artificial variables are fictitious and cannot have any physical meaning. A very large penalty
denoted by M per units is assigned in objective function to the artificial 1 variables designated as - M
in the case of maximization problems and + M in the case of minimization problems.

v) Feasible Solution
Ans: Feasible Solution
A set of non-negative values xij, i = 1,2,..,m; j = 1,2, ...,n that satisfies the constraints is called a
feasible decision.
Feasible values of the decision variables are limited by a set of constraints that are described by
mathematical function of the decision variables. The feasible decisions are compared using an
objective function that depends on the decision variables. For a linear program, the objective function
and constraints are required to be linearly related to the variables of the problem.

(b) Solve the following L.P.P by simplex method

Maximize Z = 4x1+ 3x2
Subjected to constraints:
2x1+ x2  72
x1 + 2x2  48
x1, x2  0

(c) Also write the dual of the above problem.

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Year 2011
(a) A firm makes two types of furniture- chairs and tables. The contribution for each product as
calculated by the accounting department is ` 20 per chair and ` 30 per table. Both products are
processed on three machines M1, M2 and M3. the time required in hours by each product and total
time available in hours per week on each machine are as follows:

Machine chair table available time

M1 3 3 36
M2 5 2 50
M3 2 6 60
How should the manufacturer schedule his production in order to maximize contribution?
Ans: x = 3, y = 9 max profit = 330

(b) Explain the limitations of linear programming.

Year 2010
(a) Solve the following LP using Two – Phase method:
Maximize Z = 2x1 + 2x2+ 4x3
Subjected to 2x1+ x2 + x3  2
3x1 + 4x2 + 2x3 8
x1, x2, x3 0

(b) A furniture manufacturing company plans to make two products chairs & tables from its available
resources which consists of 400 board feet of Mahogany timber and 450 man hours of labour. It knows
that to make a chair requires 5 board feet and 10 man hours and yield a profit of ` 45 while each table
uses 20 board feet and 15 man hours and has a profit of ` 80. How many of each of the products, the
manufacturer should make in order to maximize his profit? Solve using simplex method.

(c) State whether the following statements are True or False, briefly explaining (Max 5 lines) the
reasons there of (Answer in serial order only):

a) In real life situations, the variables of an LPP can be unrestricted in sign.

Ans: True
The variables contained in the objective function are known as 'activity variables' or as 'decision
variables' because the solution specifies the level of activity for each variable represented in the
objective function. A solution can specify zero production of some variables but negative variables
values are not permitted in the solution of a linear programming problem.
Hence in real life situations the variables of an LPP can be unrestricted in sign as losses can always be
there in any organization.
b) In an LPP, replacing  or  by = in the constraints can improve the value of the objective
function.
Ans: False
Signs are converted not replaced and conversion is done by using different variables as the resources
cannot be used in full.
Slack Variable

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A variable added to the left-hand side of a ‘less-than or equal-to' constraint to convert the constraint
into an equality is called a slack variable. In economic terminology, the value of the non-negative
variable can usually be interpreted as the amount of unused resources.
Surplus Variable
A variable subtracted from the left-hand side of the 'greater-than or equal-to' constraint, to convert the
constraint into an equality is called a 'surplus variable'. The value of this variable can usually be
interpreted as the amount over and above the required minimum level.

c) A non-binding constraint in an LPP is a redundant constraint.

Ans: False
Linear programs can have such constraints that do not affect the feasible region, i.e., the feasible
region remains the same whether or not the constraint is included into the problem, called redundant
constraints. These can be dropped from the problem without having effect on the optimal solution.

Once the optimal solution to an LPP is obtained, we may classify the constraints as being binding or
non-binding. A constraint is termed as binding if the left-hand side and right-hand side of it are equal,
when optimal values of the decision variables are substituted into constraints. Otherwise, if on
substitution decision variables do not lead to equality between left and right hand sides of the
constraint, it is said to be non-binding. Hence a non-binding constraint in an LPP is not necessarily a
redundant constraint.

d) The different criteria for making decision under uncertainty always yield the same choice.
Ans: False
The different criteria for making decision under uncertainty may yield the different or same choice.
Many a times it is found that choices obtained from maximin, minimax, regret, realism and rationality
are different.
e) In a max LPP, variable X1 having largest C1 in the objective function will always appear at a
positive level in the optimal solution.
Ans: True
The largest coefficient in objective function moves the iso-profit line to the positive level of the
optimal solution.
f) A zero sum game is one whose value is zero.
Ans: True
A zero sum game is one in which the sum of the payments to all the competitors is zero for every
possible outcome of the game. In other words, in such a game the sum of the points won equals the
sum of the points lost i.e., one player wins at the expense of the other (others). Two-person matrix
game is always zero sum game since one player loses what the other wins.

But in a non-zero sum game the sum of the payoffs from any play of the game may be either positive
or negative but not zero. A well-known example of a non-zero-sum game is the case of two competing
firms each with a choice regarding its advertising campaign. If we assume that the market is quite
small so that sales remain at nearly the same level whether the firms engage in advertising or not. If
neither firm advertises, they both save the cost of advertising and thus each receives appositive benefit
or payoff (representing a non zero-sum outcome). In the event both firms spend equal amounts of
money to advertise, neither firm's sales will increase (given equal quality of the advertising

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campaigns) and thus both firms will have incurred the cost of advertising without any benefits. Since
both firms will lose money, this is clearly a non-zero-sum outcome.
g) Redundant constraints represent abundant resources.
Ans: True
Linear programs can have such constraints that do not affect the feasible region, i.e., the feasible
region remains the same whether or not the constraint is included into the problem, called redundant
constraints. These can be dropped from the problem without having effect on the optimal solution.
Thus, a redundant constraint represents an abundant resource.
h) If a constant value is added to every cost element Cij in the assignment matrix, the optimum
assignment will not change.
Ans: True
The whole process of assignment problem is based on row reduction and column reduction which will
yield the same result on adding a constant value to every cost element Cij in the assignment matrix (as
the quantity to be subtracted and subtracted from are increased by the same quantity so the difference
obtained will be same as previously).
i) In a two person zero sum game, if the optimum solution requires one player to use a pure
strategy the other player also does the same.
Ans: True
In case of game with saddle point, pure strategy is opted. A saddle point (or Equilibrium point) of a
payoff matrix is that position in the payoff matrix where the maximum of row minima coincides with
the minimum of the column maxima. The payoff at the saddle point is called the value of the game and
is obviously equal to the maximin and minimax values of the game.

For example, for player A minimum value in each row represents the least gain (payoff) to him if he
chooses his particular strategy. These are written in the matrix by row minima. He will then select the
strategy that gives largest gain among the row minimum values. This choice of player A is called the
maximin principle, and the corresponding gain is called the maximin value of the game.

Similarly, for player B who is assumed to be loser, the maximum value in each column represents the
maximum loss to him if he chooses his particular strategy. These are written in the payoff matrix by
column maxima. He will then select the strategy that gives minimum loss among the column
maximum values. This choice of player B is called the minimax principle, and the corresponding loss
is the minimax of the game.

j) Elimination of redundant row or redundant column of pay-off matrix in theory of games is

based on Johnson's rule.
Ans: False
In operations research, Johnson's Rule is a method of scheduling a number of jobs on two successive
work centers. The primary objective of Johnson's Rule is to find an optimal sequence of jobs to reduce
make span (the total amount of time it takes to complete all jobs). It also reduces the number of idle
time between the two work centers.

Hence Johnson's rule is not applied on the theory of games.

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k) Changes in the availability of resources can only affect the feasibility of the optimal LPP
Solutions.
Ans: True
As changes the availability of resources respective constraints changes and hence the feasibility of the
optimal, solutions also changes.
l) If the feasible solution space is unbounded the objective function in an LPP will also be
unbounded.
Ans: True
When the value of decision variables in linear programming is permitted to increase infinitely without
violating the feasibility condition, then the solution is said to be unbounded. Here, the objective
function value can also be increased infinitely. However, an unbounded feasible region may yield
some definite value of the objective function.
m) The addition of a constraint in an LPP can improve the objective function value.
Ans: False
As the number of constraints increases, number of variables will increase as a result of which the
objective function value will become more and more erroneous. Also addition of a redundant
constraint is fruitless.

Year 2009
(a) Solve the following LPP by simplex method
Max Z = -x1 - x2
3x1 + 2x2  30
-2x1 + 3x2  -30
x1 + x2  5
Where x1, x2  0

(b) Solve the following LPP by simplex method

Max Z = 4x1 + 3x2
2x1 + x2  30
x1 + 2x2  24
Where x1, x2  0

(c) Solve the following LPP by two-phase method:

Minimize Z = 15/2x1 – 3x2
3x1 – x2 – x3  3
x1- x2 + x3  2
Where x1, x2, x3  0
Ans: x1 = 5/4, x2 = 0, x3 =3/4 min Z = 75/8

Year 2008
A manufacturing firm has discontinued production of a certain unprofitable product line. This created
considerable excess production capacity. Management is considering devoting this excess capacity to
one or more of the 3 products. P1, P2 and P3. The available capacity on the machines which might
limit output is summarized in the following table:

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Machine type Available time in hours
Milling machine 200
Lathe 100
Grinder 50
The number of machine hours required for each unit of the respective products is given below:
Machine type Productivity (in machine hours per unit)
Product P1 Product P2 Product P3
Milling machine 8 2 3
Lathe 4 3 -
Grinder 2 - 1
The sales department indicates that the sales potential for products P1 and P2 exceeds the maximum
production rate and that the sales potential for potential for product P3 is 20 unit per week. The unit
profit would be ` 20, ` 6, and ` 8 respectively on products P1, P2 and P3. Formulate LP model for
determining how much of each product the firm should produce in order to maximize profit and solve.

Year 2007
Jugal runs a day care for preschoolers. They are trying to decide what to feed the children for lunches.
They would like to keep their cost down, but also need to meet the nutritional requirements of the
children. They have already decided to go with peanut butter and jelly sandwiches, and some
combination of sweet, milk and juice. The nutritional content of each food choice and its cost are
given in the table:
Food item Calories Total calories Vitamin C Protein (g) Cost (`)
from fat (mg)
Bread (1 slice) 10 70 0 3 5
Butter (1 tbsp) 75 100 0 4 4
Jelly (1 tbsp) 0 50 3 0 7
Sweet (1 No) 20 60 0 1 8
Milk (1 cup) 70 150 2 8 15
Juice (1 cup) 0 100 120 1 35
The nutritional requirements are as follows:
(i) Each child should receive between 400 & 600 calories.
(ii) No more than 30% of the total calories should come from fat.
(iii) Each child should consume at least 60 mg of vitamin C & 12g of protein.
(iv) Each child needs exactly 2 slices of bread (to make sandwich), at least twice as much butter as
jelly and at least 1 cup of liquid (milk and / juice).
Jugal wants to select the food choices for each child, which minimizes cost while meeting the above
requirements.
(a) Formulate a LP model for this problem.
(b) Make a simplex table for the above and show one iteration.

Year 2006
(a) Solve the following LPP by primal dual method:
Maximize Z = x1 + x2
Subject to x1 + x2  2
x1 + 3x2  3
Where x1, x2  0
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Ans: x1 = 3, x2 = 0 max Z = 3

(b) Solve the following LPP by two-phase method:

Minimize Z = x1 + x2
Subject to 2x1 + x2  4
x1 + 7x2  7
Where x1, x2  0
Ans: x1 = 21/13, x2 = 10/13 Min Z = 31/13

Year 2005
(a) Solve the following LPP by converting it into dual
Minimize Z = 20x1 + 10x2
x1 + x2 10
3x1 + 2x2  24
Where x1, x2  0
Ans: x1 = 0, x2 = 12 min Z = 120

(b) Solve the following LPP by two-phase method:

Maximize Z = 4x1 + 3x2
2x1 + 3x2  6
4x1 + 6x2  24
Where x1, x2  0
Ans: There is existence of artificial variable A1. If artificial variable exist in simplex table the given
problem has no feasible solution.

Year 2004
(a) Solve the following LPP by two-phase method or by solving its dual:
Minimize Z = x1 + x2
2x1 + x2  4
x1 + 7x2  7
Where x1, x2  0
Ans: x1 = 21/13, x2 = 10/13 min Z = 31/13

(b) The final simplex table for the problem:

Maximize P = 40x + 25y + 50z
Subject to x + 2y +z  36
2x + y + 4z  60
2x + 5y + 2  45
Where x, y, z  0 is given below:

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Profit Programme Quantity 40 25 50 0 0 0
per variables
unit
x y z S1 S2 S3
0 S1 11 0 1/6 0 1 -1/6 -1/3
50 Z 5 0 -4/3 1 0 1/3 -1/3
40 x 20 1 19/6 0 0 -1/6 2/3
Ci - Zi 0 -35 0 0 -10 -10
(i) Find the optimal solution, idle capacity and loss of total contribution for every unit reduced from
right hand side of the constraints.
(ii) Write the dual of the given problem and from the given simplex table write down the solution of
the dual problem.

Year 2003
Give the dual of following LPP
Maximize Z = 15x1 + 25x2
7x1 + 6x2  20
8x1 + 5x2  30
3x1 + 2x2 = 18
Where x1, x2 0
Year 2002
Solve the following LPP by converting it into dual
Minimize Z = 4x1 + x2
3x1 + 4x2  20
-x1 – 5x2  -15
Where x1, x2  0
Ans: x1 = 0, x2 = 5 min Z = 5

Year 2001
(a) Solve the following LPP by Simplex method:
Maximize Z = x1 + 2x2
-x1 + 2x2  8
x1 + 2x2  12
x1 - x2  3
Where x1, x2  0
Give the solution of dual also.
Ans: x1 = 6, x2 = 3 or x1 = 2, x2 = 5 max Z = 12

(b) A firm manufactures 3 products A, B and C. The profit are ` 3, ` 2 and ` 4 per unit respectively.
The firm has 2 machines D and E and below in the required processing time in minutes for each
product:
Product
Machine A B C
D 4 3 5
E 3 2 4

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Machine D and F have 2000 and 2500 machine minutes respectively. The firm must manufacture at
least 100 A’s, 200 B’s and 50 C’s but not more then 150 A’s set up linear programming to maximize
profit (Do not solve). Give also dual of the above problem.

Year 2000
Minimize Z = 15/2x1 – 3x2
3x1 – x2 – x3  3
x1- x2 + x3  2
Where x1, x2, x3  0
Ans: x1 = 5/4, x2 = 0, x3 =3/4 min Z = 75/8

*****

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CHAPTER 3 TRANSPORTATION

TRANSPORTATION

INTRODUCTION
The transportation problem deals with the transportation of a product manufactured at different plant
or factories (supply origins) to a number of different warehouse (demand destination). The objective is
to satisfy the destination requirements within the plants capacity constrains at the minimum
transportation cost. Transportation problem thus typically arise in situations involving physical
movements of goods from plants to warehouse, warehouse to wholesalers, wholesalers to retailers and
retailers to customers. Solution of the transportation problems requires the determination of how many
units should be transported from each supply origin to each demand destination in order to satisfy all
the destination demands while minimizing the total associated cost of transportation.

Q1 What are the common methods of obtaining initial feasible solution in a transportation problem.
Answer:
Transportation applications relate to a LPP where goods are to be transported from 'm' production
locations (factories) to 'n' sales locations (markets or ware houses) A typical transportation problem is
concerned with selecting routes in production- distribution network among manufacturing plants and
distribution outlet or regional distribution warehouses and local distribution outlets.
The transportation application can be solved in three stages-
1. Preliminary check
2. Initial Basic feasible solution
3. Optimality test.
IBFS can be determined using any of the following methods:
(i) North west-corner rule
(ii) Least cost cell method
(iii) Vogels Approximation Method (VAM)

Q2 Explain the term 'Degeneracy' in the context of a transportation problem. How can this be solved?
Answer:
A transportation problem's solution has m + n -1 basic variables, (where m, n are the number of rows
and columns) which means that the number of occupied cells in such a solution is one less than the
number of rows and number of columns.
When the number of occupied cells in a solution is less than m + n -1, the solution is called a
degenerate solution.
If a basic feasible solution of transportation problem with m origins and n destinations has fewer than
m + n -1 positive xij (occupied cells) the problem is said to be a degenerate transportation problem.
Such a situation may be handled by introducing an infinitesimally small allocation e in the least cost
and independent cell.
While in the simple computation degeneracy does not cause any serious difficulty, it can cause
computational problem in transportation problem. If we apply modified distribution method, then the

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dual variable ui and vj are obtained from the Cij value to locate one or more Cij value which should be
equated to corresponding Cij + Vij.
Q3 Will the initial solution for a minimization transportation problem obtained by Vogel's
Approximation Method and the Least Cost Method be the same? Why?
Answer:
The initial solution for minimisation problem obtained by Vogel's Approximation Method and the
Lease Cost Method is need not be the same. Vogel's Approximation Method uses the differences
between the minimum and the next minimum costs for each row and column.
This is the penalty or opportunity cost of not utilizing the next best alternative. The highest penalty is
given the 1st preference. This need not be the lowest cost.
For e.g. when a row has minimum cost as 3, and the next minimum as 2, penalty is 1; whereas if
another row has minimum 4 and next minimum 6, penalty is 2, and this row is given preference. But
least cost given preference to the lowest cost cell/ irrespective of the next cost.
Vogel's Approximation Method will result in a more optimal solution than least cost. They will be the
same only when the maximum penalty and the minimum cost coincide.

Q4 How do you know whether an alternative solution exists for a transportation problem?
Answer:
The Δij matrix = Δij = Cij - (ui+ vj)
Where ci is the cost matrix and (ui + vj) is the cell evaluation matrix for allocated cell. The Δjj matrix
has one or more 'Zero' elements, indicating that, if that cell is brought into the solution, the optional
cost will not change though the allocation changes.
Thus, a 'Zero' element in the Δij, matrix reveals the possibility of an alternative solution.

Q5 In a transportation problem for cost minimization, there are 4 rows indicating quantities demanded
and this totals up to 1,200 units. There are 4 columns giving quantities supplied. This totals up to
1,400 units. What is the condition for a solution to be degenerate?
Answer:
The condition for degeneracy is that the number of allocations in a solution is less than m+n-1.
In this question is an unbalanced situation and hence a dummy row is to be added, since the Column
quantity is greater than that of the Row quantity. The total number of Rows and Columns then = 9 i.e.
(5+4). Therefore, m+n-1 = 8, i.e. if the number of allocations is less than 8, then degeneracy would
occur

Ist Phase
Initial optimum transportation cost: -
1. Northwest corner method
2. Least cost method
3. Vogel’s approximation method (VAM).

IInd Phase
Total minimum transportation cost: -
1. Stepping stone method
2. MODI (modified distribution method)
*Supply and demand is always I numbers of units, while other numbers are in `.*

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Illustration: 1
(A) Solve with the help of Northwest corner method & least cost method.
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 19 30 50 12 7
F2 70 30 40 60 10
F3 40 10 60 20 18
REQUIRED DEMAND 5 8 7 15 35

Ans: 975, 894

(B)
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 13 11 15 40 2
F2 17 14 12 13 6
F3 18 18 15 12 7
REQUIRED DEMAND 3 3 4 5 15
Ans: 199, 197

(C)
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 (SUPPLY)
F1 2 7 4 5
F2 3 3 1 8
F3 5 4 7 7
F4 1 6 2 14
REQUIRIED DEMAND 7 9 18 34

Ans: 102, 83

VOGEL’S APPROXIMATION METHOD

Step –1
Penalty –find difference of the minimum cost from each row and each column.

Step –2
Highest penalty- select the least cost cell and fulfill the demand according to given supply

Step –3
Tie in penalty – select the penalty, which has least cost cell and if tie in least cost cell then select that
cell which, have highest allocation of units.

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Illustration: 2
Solve with the help of –Vogel’s approximation method (VAM) & least cost method

(A)
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 21 16 25 13 11
F2 17 18 14 23 13
F3 32 27 18 41 19
REQUIRIED DEMAND 6 10 12 15 43

Ans: 796, 922

(B)
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 W5 (SUPPLY)
F1 20 28 32 55 70 50
F2 48 36 40 44 25 100
F3 35 55 22 45 48 150
REQUIRIED DEMAND 100 70 50 40 40 300

Ans: VAM = 9360

Illustration: 3
Solve the following with help of Vogel’s approximation method (VAM)
NOTE: Supply is not equal to demand. We add dummy column.
1. If demand < supply then add a dummy column
2. If supply < demand then add a dummy row

(A)
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 9 12 9 6 7
F2 7 3 7 7 6
F3 6 5 9 11 9
REQUIRIED 6 4 6 2 22
(DEMAND)
Ans: 110

STEPPING STONE METHOD

Illustration: 4
Solve the following:

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ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 (SUPPLY)
F1 2 7 4 5
F2 3 3 1 8
F3 5 4 7 7
F4 1 6 2 14
REQUIRIED 7 9 18 34
(DEMAND)
Ans: IOTC = 80, TMTC = 76

Illustration: 5
Illustration: 2(a) and (b) in page number 3.4
Ans: (a) IOTC = 796, TMTC = 796 (b) IOTC = 9360, TMTC = 9240

MODI [MODIFIED DISTRIBUTION METHOD]

Illustration: 6
Solve the following.
Illustration: 4 page number 3.4 by MODI Method

Illustration: 7
Illustration: 2(a) and (b) in page number 3.4

Ans: (a) IOTC = 796, TMTC = 796 (b) IOTC = 9360, TMTC = 9240
*EPSILON*

Illustration: 8
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 50 150 70 60 50
F2 80 70 90 10 60
F3 15 87 79 81 40
REQUIRIED 20 70 50 10 150
(DEMAND)

Ans: IOTC = 9140, TMTC = 9140

Illustration: 9
Three warehouses w1, w2 and w3 are used to stock the same product, orders are received at these
warehouses from customers at four different locations m1, m2, m3 and m4

Warehouse Trucks in hand

w1 30
w2 40
w3 53
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Location Requirement in truck loads

m1 22
m2 35
m3 25
m4 41
The distance chart in terms of shipping distance in km. from the warehouses to different locations is
given below:
To
From M1 M2 M3 M4
W1 23 27 16 18
W2 12 170 20 51
W3 22 28 12 32
The average cost for shipping each truck is ` 3 per km. which ware house should supply to which
location during a shipping period, so that the total cost of shipping is minimize.
Ans: minimum cost = 7740

Illustration: 10
A particular product is manufactured in factories A, B, C and D and is sold at centers 1, 2 and 3. The
cost in ` of product per unit and capacity in kgms. Per unit time of each product is given below:
Factory Cost (`) per unit Capacity (kgms) per unit
A 12 100
B 15 20
C 11 60
D 13 80
The sales price is in ` per unit and demand (in kgms) per unit time are as follows:
Sales centers Sales price (`) per unit Demand
1 15 120
2 14 140
3 16 60
Find the optimal sales distribution
Ans: Total profit = 680

LAST YEAR QUESTIONS

YEAR 2011
(a) Solve the following transportation problem. Obtain the initial solution by NW corner rule:
To P Q R S Supply
From
A 7 3 8 6 60
B 4 2 5 10 100
C 2 6 5 1 40
Demand 20 50 50 80 200
Obtain the optimal solution.

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YEAR 2007
Solve the following transportation problem in which cell entries represent unit costs by Northwest
Corner rule:
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 7 4 1 4 4
F2 4 6 7 2 6
F3 8 5 4 6 3
F4 6 7 6 3 2
REQUIRIED
(DEMAND) 3 5 2 5 15

YEAR 2006
Solve the following transportation problem in which cell entries represent unit costs by Vogel’s
method:
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 (SUPPLY)
F1 2 7 4 5
F2 3 3 1 8
F3 5 4 7 7
F4 1 6 2 14
REQUIRIED 7 9 18 34
(DEMAND)
Ans: IOTC = 80

YEAR 2005
Solve the following transportation problem after finding the initial feasible solution by VAM. Cell
entries are the unit transportation cost.
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 1 2 4 4 6
F2 4 3 2 0 8
F3 0 2 2 1 10
REQUIRIED 4 6 8 6 24
(DEMAND)
Ans: IOTC = 28, TMTC = 28

YEAR 2004
Solve the following transportation problem for minimum cost:

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ORIGIN DESTINATION NO. OF UNITS

W1 W2 W3 AVAILABLE
10
(SUPPLY)
60 10 10
F1 5 1 7 10
15
F2 6 4 6 80
40
F3 3 2 5 15
REQUIRIED 75 20 50 105
(DEMAND)

Ans: TMTC = 515

YEAR 2003
Solve the following transportation problem for minimum cost:
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 50 150 70 60 50
F2 80 70 90 10 60
F3 15 87 79 81 40
REQUIRIED 20 70 50 10 150
(DEMAND)

YEAR 2002
Solve the following transportation problem for minimum cost:

ORIGIN DESTINATION NO. OF e 160

W1 W2 W3 W4 UNITS 80 10 40
AVAILABLE 80 110
(SUPPLY)
F1 42 48 38 37 160
F2 40 49 52 51 130 Ans: TOTC= 17060,TMTC =17050

F3 39 38 40 41 190
REQUIRIED 80 90 110 160
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YEAR 2001
Solve the following transportation problem for minimum cost:
ORIGIN DESTINATION NO. OF UNITS
I II III IV AVAILABLE
12 2 8
(SUPPLY)
15
A 5 2 4 3 22
7 1
B 4 8 1 6 15
C 4 6 7 5 8
REQUIRIED 7 12 17 9 45
(DEMAND)
Ans: 104
The shipping clerk has worked out the following plan from his past experience: 12 units from A to II;
1 units from A to III; 9 units from A to IV; 15 units from B to III; 7 units from C to I and 1 unit from
C to III.

YEAR 2000
Is X13=50, X14=20, X21=55, X31=30, X32=35, X34=25
An optimal solution of the transportation problem?
ORIGIN DESTINATION NO. OF UNITS AVAILABLE
W1 W2 W3 W4 (SUPPLY)
F1 6 1 9 3 70
F2 11 5 2 8 55
F3 10 12 4 7 90
REQUIRIED 85 35 50 45
(DEMAND)
Find transportation problem for minimum cost:

****

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CHAPTER 4 ASSIGNMENT

ASSIGNMENT

INTRODUCTION
The assignment problem refers to another special class of linear programming problem where the
objective is to assign a number of resources (items) to an equal number of activities (receivers) on a
one to one basis so as to minimize total cost (or total time) of performing the task at hand or
maximizes total profit of allocation. The problem of assignment arises because available resources
(such as men, machines etc) have varying degrees of efficiency for performing different activities
(such as job) where by cost, time or profit of performing the different activities is not the same.
Several problems of management have a structure identical with the assignment problem. A
departmental head may have several people available for assignment and several jobs to fill. He may
like to know which job should be assigned to which person so that all these tasks can be accomplished
in the shortest possible time.

FEW APPLICATIONS OF THE ASSIGNMENT METHOD

1. Assign salespeople to sales territories
2. Assign development engineers to several construction sites
3. Schedule teachers to classes, etc.

Illustration: 1. A company has four machines and four jobs. The relevant cost matrix is given below.
Find the assignment that minimizes total cost.
Jobs
Machines J1 J2 J3 J4
M1 45 40 51 67
M2 57 42 63 55
M3 49 52 48 64
M4 41 45 60 55

Ans: M1 - J2 = 40 `
M2 - J4 = 55 `
M3 - J3 = 48 `
M4 - J4 = 41 `
Total cost = 184 `

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Illustration: 2
Jobs
Machines J1 J2 J3 J4 J5
M1 10 3 3 2 8
M2 9 7 8 2 7
M3 7 5 6 2 4
M4 3 5 8 2 4
M5 9 10 9 6 10

Ans: M1 - J2 = 3 `
M2 - J4 = 2 `
M3 - J5 = 4 `
M4 - J1 = 3 `
M5 - J3 = 9 `
Total cost = 21 `

Illustration: 3
Time in minute’s matrix
A B C D
W 120 100 80 90
X 80 90 110 70
Y 110 140 120 100
Z 90 90 80 90
Ans: Case I Case II
W-C=80 W-C=80
X-A=80 X-D=70
Y-D=100 Y-A=110
Z-B=90 Z-B=90
350 min 350 min

MAXIMIZATION IN AN ASSIGNMENT PROBLEM

Some assignment problems are phrased in terms of maximizing the payoff, profit, or effectiveness of
an assignment instead of minimizing costs. It is easy to obtain an equivalent minimization problem by
converting all numbers in the table to opportunity costs by subtracting every number in the original
payoff table from the largest single number in that table. It turns out that the minimizing opportunity
costs produces the same assignment as the original maximization problem.
When we take about profit, quality, efficiency etc that all are the maximization case because a
businessman always wants to maximize his profits or quality efficiency. He never wants to minimize
that so when in the question profit matrix, quality matrix, or efficiency matrix is given then it is
maximization case and we also convert this case into minimization.
When the cost, time, distance, given in the question then we can say it is automatically a minimization
case because a businessman always want to minimize his cost or distance or time so in that question
there is no need to minimize a case.

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Illustration: 4
Five different machines can do any of the five required job, with different profits resulting from each
assignment as shown in the adjoining table. Find out maximum profit possible through optimal
assignment.
Subordinates
Jobs A B C D E
1 30 37 40 28 40
2 40 24 27 21 36
3 40 32 38 30 35
4 25 38 40 36 36
5 29 62 41 34 39
Ans: Job Machine Profit
1 E 40
2 A 40
3 C 38
4 D 36
5 B 62
Total 216
Illustration: 5
The captain of a cricket team has to allot five middle batting positions to five batsmen. The average
runs scored by each batsman at these positions are as followings:
Batting Positions
Batsman I II III IV V
P 40 40 35 25 50
Q 42 30 16 25 27
R 50 48 40 60 50
S 20 19 20 18 25
T 58 60 59 55 53
Find the assignment of batsmen to positions, which would give the maximum number of runs.
Ans: P - V = 50
Q - I = 42
R - IV = 60
S - III =20
T - II = 60
Total run 232

Illustration: 6
Profit Matrix
A B C D
W 60 40 60 70
X 20 60 50 70
Y 20 30 40 60
Z 30 10 30 40

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Ans: Case I Case II
W - A = 60 W – C = 60
X – B = 60 X – B = 60
Y – D = 60 Y – D = 60
Z – C = 30 Z – A = 30
210 210

Illustration: 7

Profit Matrix YEAR 2004

A B C D
W 42 35 28 21
X 30 25 20 15
Y 30 25 20 15
Z 24 20 16 12

Ans: Case I Case II

W - A = 42 W – A = 42
X – B = 25 X – C = 20
Y - C = 20 Y – B = 25
Z – D =12 Z – D =12
99 99

Illustration: 8
Profit Matrix
A B C D
W 320 350 400 280
X 400 250 300 220
Y 420 270 340 300
Z 250 390 410 350

Ans: Case I
W - C = 400
X – A = 400
Y – D = 300
Z – B = 390
1490

UNBALANCE ASSIGNMENT PROBLEM

The solution procedure to assignment problems just discussed requires that the number of rows in the
matrix (or table) equal the number of columns often, however the number of workers (or objects) to be
assigned does not equal to number of jobs (or machines) listed in the columns. When this occurs and
we have more rows then columns, we simply add a dummy column (or job). If the number of job that

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needs to be done exceeds the number of workers available, we add a dummy row. This creates a
matrix (or table) of equal dimensions and allows us to solve the problem.

Illustration: 9
Four different airplanes are to be assigned to handle three cargo consignments with a view to
maximize profit. The profit matrix is as follows (in thousands of rupees): [Year 2002]
Cargo Consignments
Airplane I II III
W 8 11 12
X 9 10 10
Y 10 10 10
Z 12 8 9
Ans: (1) W - III = 12000 (2) W- II = 12000
X - II = 10000 X - dummy = 0
Y - Dummy = 0 Y – II = 10000
Z-I = 12000 Z - I = 12000
Total Profit 34000 34000

Illustration: 10
Four different airplanes are to be assigned to handle three cargo consignments with a view to
maximize profit. The profit matrix is as follows (in thousands of rupees)
Cargo Consignments
Airplane C1 C2 C3
A1 10 40 50
A2 20 30 30
A3 30 30 30
A4 50 10 20
A PROBLEM WITH IMPOSSIBLE ASSIGNMENTS
In some cases a certain worker cannot be assigned a particular job. The reason for impossible
assignment are lack of required skills, deficiency in technical know-how, improper training, and
physical inability are only a few many reasons. For solving such type of assignment problems we put
infinite cost in the cell where no assignment is possible. The remaining procedure is exactly the same
as the ordinary assignment problem.

Illustration: 11
Four operators O1, O2, O3, O4, are available to a manager who has jobs J1, J2, J3, J4 to assign to
these four operators. Given the time needed by different operators to perform different jobs in the
matrix given below:
Jobs
Operators J1 J2 J3 J4
O1 12 10 10 8
O2 14 12 15 11
O3 6 10 16 4
O4 8 10 9 7
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(i) How should the manager assign the jobs so that total time needed for all the jobs is minimum?
(ii) If job J2 is not to be assigned to operator O2, what should be the revised assignment and how
much additional time will be required?
Ans: optimal solution: O1 – J3 = 10hrs O1 - J2 = 10hrs
O2 - J2 = 12hrs O2 - J4 = 11hrs
O3 - J4 = 4 hrs O3 - J1 = 6 hrs
O4 – J1 = 8 hrs O4 - J3 = 9 hrs
Total time = 34hrs Total time =36hrs

Illustration: 12
The captain of a cricket team has to allot five middle batting positions to five batsmen. The average
runs scored by each batsman at these positions are as follows:
Batting Positions
Batsman I II III IV V
P 40 40 35 25 50
Q 42 30 16 25 27
R 50 48 40 60 50
S 20 19 20 18 25
T 58 60 59 55 53
If another batsman ‘U’ with the following average runs in batting positions as given below:
Batting position: I II III IV V
Average runs: 45 52 38 50 49
is added to the team should he be included to play in the team? If so, who will be replaced by him?
Ans: Batsman P Q R S T U
Batting position V I IV dummy III II
Runs 50 42 60 - 59 52
Hence batsman U will be included in the team at position II and he will replace batsman ‘S’. The total
runs will be 263.

Illustration: 13
A firm produces four products. There are four operators who are capable of producing any of these
four products. The processing time varies from operator to operator. The firm records 8 hours a day
and allows 30 minutes for lunch. The processing time in minutes and profit for each of the products
are given below:
Products
Operators A B C D
1 40 40 35 25
2 42 30 16 25
3 50 48 40 60
4 20 19 20 18
Profit (`) per unit 58 60 59 55

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Find the optimal assignment of products to operators.
Ans: Profit: ` 1140

Illustration: 14 – Year 2014

A solicitors firm employs typists on hourly price basis for their daily work. There are five typists and
their charges and speeds are different. According to an earlier understanding only one job is given to
one typist and is paid for a full hour even if he works for fraction of an hour. Find the least cost
allocation for the following data:

Typist Rate per No. of pages Job No. of

hour (`) Typed/ hour pages
A 5 12 P 199
B 6 14 Q 175
C 3 8 R 145
D 4 10 S 298
E 4 11 T 178

Ans: Total cost: ` 399

LAST YEAR QUESTIONS

YEAR 2011
(a) A company plans to assign 5 salesman to 5 districts in which it operates. Estimate of sales revenue
in thousands of rupee for each salesman in different districts are given in the table shown. What should
be the placement of the salesman if the objective is to maximize the expected sales revenue?
District D1 D2 D3 D4 D5
Salesman
S1 40 46 48 36 48
S2 48 32 36 29 44
S3 49 35 41 38 45
S4 30 46 49 44 44
S5 37 41 48 43 47
YEAR 2008
A company has five machines and on a particular day it has 5 jobs to be performed. All machines can
do all type of jobs. Cost estimate of performing each job on each machine is given in table. Assign one
machine each to all jobs:
Cost (in thousand)
Machine
Machine 1 2 3 4 5
1 9 5 13 12 17
2 13 19 9 17 16
3 11 5 4 7 13
4 9 2 7 13 5
5 3 7 9 5 17

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Ans: Total minimum cost: 29

YEAR 2007
Consider the following cost table for an assignment problem:
Find the optimal solution.
Job
Person A B C
A 5 7 4
B 3 6 5
C 2 3 4
Ans: JOB COST
A 4
B 3
C 2
10

YEAR 2006
A car hire company has one car at each of five depots a, b, c, d and e. A customer requires a car in
each town namely A, B, C, D and E. distance (in Kms.) between depots (origins) and towns
(destinations) are given in the following distance matrix:
How should car be assigned to customers so to minimize the distance traveled?
A B C D E
A 160 130 175 190 200
B 135 120 130 160 175
C 140 110 155 170 185
D 50 50 80 80 110
E 55 35 70 80 105

YEAR 2005
Solve the following assignment problem. The data given in the table refers to production in units:
Jobs
Operators A B C D
1 10 5 7 8
2 11 4 9 10
3 8 4 9 7
4 7 5 6 4
5 8 9 7 5

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Ans: 1-A 10
2-D 10
3-C 9
4-DummyL4 0
5-B 9
Total 38

YEAR 2003
Five lathes are to be allotted to five operators (one for each). The following table gives weekly output
figures (in no. of pieces).
Weekly Output of Lathes
L1 L2 L3 L4 L5
P 20 22 27 32 36
Q 19 23 29 34 40
R 23 28 35 39 34
S 21 24 31 37 42
T 24 28 31 36 41
Ans: P - L1 = 20
Q - L5 = 40
R - L3 = 35
S - L4 = 37
T - L2 = 28
Total weekly output=160

*****

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CHAPTER 5 GAME THEORY

In business and economics literature the term “games” refers to the general situations of conflict and
competition in which the participants are engaged in decision-making activities in anticipation of
certain outcomes overtime.
The theory of games deals with mathematical aspects of the decision-making process and formulation
of strategies of individuals pursuing conflicting interests.

CHARACTERISTICS OF GAME
A competitive situation is called a game if it satisfies following assumptions:
(a) Number of participants, in any competitive situation is finite.
(b) The number of alternatives, (moves) available to each of the participant is finite. Of course, it
is not necessary that all the participants have equal number of alternatives.
(c) Every participant has the knowledge about the alternatives available to his opponents.
(d) Every combination of courses of action determines an outcome, which results in a gain to each
player (a loss is considered as a negative gain). The gain or loss of each player is finite and is
fixed before the game.
(e) All players are equally wise and behave rationally.
(f) Each player attempts to maximize his gain or minimize loss.
(g) Each player makes individual decision.
(h) There exist a set of rules according to which payoff will be determined.
A game involving ‘n’ players is called a n-person game.

TWO PERSON ZERO-SUM GAMES:

Two person zero-sum games are games played by two persons, parties or groups, with directly
opposing interests. One person’s gain is exactly equal to the loss of another person and therefore the
sum total of the gains and losses equal to zero.

PLAYER B

I II III IV
PLAYER A I 3 2 -1 0
II -2 1 4 2
III 2 3 -1 1

A positive entry denotes a payment from B to A while a negative entry denotes a payment from A to
B. for example if A uses alternative II and B uses alternative I then A pays to B, 2 units.

(1) Strategy
A rule or a set of rules on the basis of which a player selects his alternative. The strategy may be of
two kinds:
(a) Pure strategy: a pure strategy is a decision always to select the same course of action.

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(b) Mixed strategy: mixed strategy is a decision to select more than one of his course of action with
fixed probabilities, i.e. if a player decides to use just two courses of action with equal probabilities, he
might toss a coin to decide which one to choose.

(2) Value of a game

The value of the game is the expected gain of player A if both players use their optimal strategies.

(3) Solution of a game

The solution of game involving finding:
(a) Optimal strategy for player A.
(b) Optimal strategy for player B.
(c) The value of the game.

PURE STRATEGY AND A SADDLE POINT

Equilibrium value or saddle point
Calculate saddle point

A’s strategies B’strategies Row Maximin

B1 B2 B3
A1 15 14 16 14*
A2 12 13 17 12
A3 14 13 10 10
Column Minimax 15 14* 17

The best strategy for row player is the row to which saddle point belongs.
The best strategy for column player is the column to which saddle point belongs.
The value of the game is equal to the value of the saddle entry.

Solve the following game

C
C1 C2 C3
3 0 -3 R1
2 3 1 R2 R
-4 2 -1 R3

R’s strategies C’s strategies Row Maximin

C1 C2 C3
R1 3 0 -3 -3
R2 2 3 1 1*
R3 -4 2 -1 -4
Column Minimax 3 3 1*
Optimal strategy for R is R2
Optimal strategy for C is C3
Value of the game is 1

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Q1 Find the solution of the following game:

(a) Player B
2 4 3 8 4
Player A 5 6 3 7 8
6 7 9 8 7
4 2 8 4 3

Ans: Game strategy R3, C1 Value of Game=6

(b) Player B
12 -8 -2
Player A 6 7 3
-10 -6 2

Ans: Game strategy R2, C3 Value of Game=3

(c) Player B
1 3 2 7 4
Player A 3 4 1 5 6
6 5 7 6 5
2 0 6 3 1

Ans: Game strategy R3, C2 Value of Game = 5

MIXED STRATEGIES: Game without saddle point

(a) Oddoment method for finding the mixed strategy.
(b) Algebric method.

Q2. Find the optimal strategy for the game (use oddoment method).
(a) Player ‘C’
C1 C2
Player ‘R’ R1 1 0
R2 -4 3 2*2

Ans: Optimal Strategy of R= 7/8 Optimal Strategy of C = 3/8

1/8 5/8
Value of Game = 3/8

(b) Player B
B1 B2
Player A A1 2 -1
A2 -2 3

Ans: A= 5/8 B= [½, ½] V = [1/2]

3/8
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(c) Player B
B1 B2
Player A A1 4 0
A2 0 8

Ans: A= 2/3 B=[2/3,1/3 ] V= [32/12]

1/3

(d) Two players A and B each put down a coin. If coins match i.e. both are heads or both are tails. A
gets rewarded otherwise B. however, matching on head gives a double premium. Obtain the best
strategies for both players and the value of the game.
Ans: A= 2/5 B=[2/5,3/5 ] V= [1/5]
3/5

(e) A has two ammunition stores, one of which is twice as valuable as the other. B is an attacker who
can destroy an undefended store but he can attack only any one of them at a time. A knows that B is
about to attack one of the stores but does not know which one. What should he do? Note he can
successfully defend one store at a time.
Ans: Optimal strategy for A: 2
3
1
3

Optimal strategy for B: = 1 2

3 3

Value of the game = -2

3

(f) There are two players A and B. player A has two cards (black 5 and red 5), players B also has two
cards (black 5 and red 3). At a given signal both the players simultaneously expose one of the two
cards. If the cards match in colour player A wins the amount equal to the sum of the numbers on two
cards and if cards do not match in colour player B wins the amount equal to the sum of the numbers on
two cards. Find the solution of the problem based on game theory.
Ans: Optimal strategy for A: A 18/36 or 1/2
18/36 or 1/2

Optimal strategy for B: 16 20

36 36

Value of the game = 0

(g) Two players R and C have one coin each. After a signal each of them exposes the coin. Player R
wins a unit where there are two heads, wins nothing when there are two tails and looses 1/2 unit when
there is one head and 1 tail. Determine the pay-off matrix, the best strategies for each player and the
value of the game.

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Ans: Optimal strategy for R: 1
4
3
4

Optimal strategy for C: = 1 3

4 4

Value of the game = -1

8

Q3 Find the optimal strategy for the game using algebraic method.

(a) Player B B1 B2
Player A A1 25 5
A2 10 15

Ans: A= 1/5 B=[2/5,3/5] V=[13]

4/5

(b) Player B B1 B2
Player A A1 1 4
A2 5 3

Ans: A= 2/5 B=[1/5,4/5] V=[17/5]

3/5

GENERAL RULES FOR DOMINANCE

1. If each element of a row (say ith row) of the pay off matrix is less than or equal to the corresponding
element in another row (or average of the corresponding elements of two or more rows) then the ith
strategy of row player is said to be dominated and the row player will never use ith strategy, therefore
ith strategy, (ith row) can be deleted from payoff matrix of the game.

2. If each element of a column (say jth column) of the pay off matrix is greater than or equal to the
corresponding element in another column (or average of the corresponding elements of two or more
columns), then column player (player B) will never use jth strategy .i.e. jth column can be deleted from
the payoff matrix of the game.

Q4. Solve the following game by using low of dominance:

(a) Player B
35 35 25 5
Player A 30 20 15 0
40 50 0 10
55 60 10 15
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Ans: A= 1/5 B=[2/5, 3/5] V=[13]

4/5

(b) Player B
1 7 2
Player A 6 2 7
5 1 6

Ans: A= 4/10 B=[5/10, 5/10, 0] V= [4]

6/10
0

(c) Player B
-4 -3 4
Player A 6 -2 3
5 -4 -5

Ans: Optimum strategy is R2C2, Value of the Game = -2

(d)
R’s strategies C’s strategies
C1 C2 C3 C4
R1 7 6 8 9
R2 -4 -3 9 10
R3 10 2 -5 0

Ans: Optimum strategy is R1C2

Value of Game = 6

(e)
R’s strategies C’s strategies
C1 C2 C3 C4
R1 42 72 32 12
R2 40 30 25 10
R3 30 08 10 0
R4 45 10 0 15

Ans: A= 15/35 B=[0, 0, 3/35, 32/35] V=[96/7]

0
0
20/35

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Q5 Find the solution of the following game by using low of dominance: [Hint: Average]
R’s strategies C’s strategies
C1 C2 C3 C4
R1 3 2 4 0
R2 3 4 2 4
R3 4 2 4 0
R4 0 4 0 8

Ans: A= 0 B= [0, 0, 2/3,1/3] V = [32/12]

0
2/3
1/3

METHOD OF SUB-GAME

Q1 Consider the following game matrix find optimal strategies for both the players and also find out
the game value.

B1 B2 B3 B4
A1 1 0 -1 0
A2 -3 -2 1 2

Ans: A= 3/4 B= [0, ½, ½, 0] V = [-1/2]

1/4

Q2. Solve the game whose payoff matrix is given below:

Player B
6 -1
Player A 0 4
4 3

Ans: A= 0 B = [1/5, 4/5] V=[16/5]

1/5
4/5

GRAPHICAL METHOD

Q1. Solve the following game graphically and find the value of the game.

(a) Player B
8 4 -2
Player A -2 -1 3

Ans: A= 4/10 B=[0, 5/10, 5/10] V= [1]

6/10
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(b) Player B
-6 7
Player A 4 -5
-1 -2
-2 5
7 -6

Ans: A= 0 B=[11/20, 9/20] V= [23/20]

0
0
13/20
7/20

(c) Player B
1 2 -5
Player A -1 -2 0

Ans: A= 2/9 B=[0, 5/9,4/9] V= [-10/9]

7/9

(d) Player B
8 15 -4 -2
Player A 19 15 10 14
0 10 15 5

Ans: A= 0 B= [0, 0, 9/14, 5/14 ] V= [160/14]

10/14
4/14

PROBABILITY METHOD

Q1 Solve the following game

(a) Player B B1 B2
Player A A1 1 4
A2 5 3

Ans: A= 2/5 B =[1/5,4/5] V=[17/5]

3/5

(b) Player B B1 B2
Player A A1 6 -3
A2 -3 0

Ans: A= 3/12 B=[3/12,9/12] V= [-9/12]

9/12
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Q2 Consider the following game:

PlayerB B1 B2
Player A A1 0 2
A2 1 1

Show that V (x, y)= 1-2xy + x

Q3.If the pay off matrix for the player A in a game is:

a4 a 3 a3
Player A a1 a6 a5
a2 a4 a3

Such that 0 < a1 < a2 < a3 < a4 < a5<a6 X1 and [Y1, Y2, Y3] are the optimal strategies for
X2
X3

the player A and B respectively, and V is the value of the game then prove that:
(i) X3=Y2=0 (ii) a3<V<a4

LPP METHOD

Q1 Solve the following game by LPP method:

C
C1 C2 C3
R1 5 -2 4
R R2 3 -1 -5
R3 0 6 9

Ans: Optimal strategy for C 8 5 0

13 13

Optimal strategy for R 6

13
0
7
13

Value of the game = 4

13

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LAST YEAR QUESTIONS

Year 2012
(a) A has two ammunition stores, one of which is twice as valuable as the other. B is an attacker who
can destroy an undefended store but he can only attack one of them. A can successfully defend only
one of them. A learns that S is about to attack one of the stores but does not known which. What
should he do? What is the outcome?

(b) Consider a game of matching coins, were matching on heads gives double premium than of
matching tails to A by B. in other conditions B will get the premium (single) construct the game and
get value of the game and strategy of both players.

Year 2011
Solve the following two person zero-sum game:
Strategy Player B
1 2 3
A1 5 7 11
Player A A2 2 -1 8
A3 18 -6 10

Solve the following game by linear programming

Strategy Player B
1 2 3
A1 1 -2 1
Player A A2 -1 3 -2
A3 -1 -2 3
Ans: A = 12/13 B = [1/2,1/2, 0] V = 6
0
1/13

Year 2010
Formulate the following game as an LPP and obtain its solution:
B’s Strategy
B1 B2 B3
A’s strategy A1 8 9 3
A2 2 5 6
A3 4 1 7

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Year 2013, 2009
Solve the following game whose pay off matrix is given by:
B
I II III IV
I 3 2 4 0
A II 3 4 2 4
III 4 2 4 0
IV 0 4 0 8

Year 2008
For the game having the following payoff table. Use the graphical procedure to determine the value of
the game and the optimal mixed strategy for each player according to the minimax criterion.
Strategy Player 2
1 2 3
1 1 -1 3
Player 1 2 0 4 1
3 3 -2 5
4 -3 6 -2

Ans: Player 1 = 0 Player 2 = [0, 0, 6/9, 3/9] V = [12/9]

5/9
4/9

Year 2007
Find the saddle point for the game having following pay off table:

Strategy Player 2
1 2 3
Player 1 1 3 –3 -2
2 -4 –2 -1
3 1 –1 2
Use the minimax criticism to find the best strategy for each player. Does this game have a saddle
point? Is it a stable game?
Ans: Optimal strategy of player 1 is 3
Optimal strategy of player 2 is 2
Value of Game = -1

Year 2006
(a) Player B
-2 0 0 5 3
Player A 3 2 1 2 2
-4 -3 0 -2 6
5 3 -4 2 -6

Ans: Optimal strategy of player A is A2

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Optimal strategy of player B is B3
Value of Game = 1

(b) Solve the following game by algebraic method:

1 -1 -1
-1 -1 3
-1 2 -1

Ans: A = 6/13 B = [6/13, 4/13, 3/13] V = [-1/13]

3/13
4/13

Year 2005
Solve the following game:
(a) Player B
19 6 17 5
Player A 17 3 14 6
14 8 20 4
10 6 12 2

Ans: A = 3/4 B = [0, 1/4, 0, 3/4] V = [21/4]

1/4
0
0

(b) Solve the following game by algebraic method:

-1 2 1
1 -2 2
3 4 -3

Ans: A = 17/46 B = [7/23, 6/23,10/23] V = [15/23]

20/46
9/46

Year 2004
Solve the following game by using law of dominance:

(a) Player B
8 10 5 15
Player A 6 3 7 5
10 12 6 14
5 8 9 10

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Ans: A= 0 B =[3/8, 0, 5/8, 0] V = [60/8]
0
4/8
4/8

(b) Player B
2 2 1 -2 -3
Player A 4 3 4 -2 0
5 1 2 5 4
Ans: A = 0 B = [0, 7/9, 0, 2/9, 0] V = [17/9]
4/9
5/9
Year 2003
A and B play a game in which each has three coins, 5 paise, a 10 paise and a 20 paise coin. Each
player selects a coin without the knowledge of other’s choice. If the sum of the coin is an odd amount,
A wins B’s coin and if the sum is even, B wins A’s coin. Find the best strategy for each player and
value of the game.
Ans: A= ½ B= [2/3, 1/3, 0] V = [0]
½
0

Year 2002
(a) 0 -1 2
-5 2 4
-2 -3 4

Ans: A= 7/8 B= [3/8, 5/8, 0] V= [-5/8]

1/8
0
(b) Player B
3 -1 1 1
Player A -2 3 2 3
2 -2 -2 1
0 -3 -2 0

Ans: A = 5/9 B = [4/9, 5/9, 0, 0] V=[7/9]

4/9
0
0

Year 2001
(a) Player B
0 0 0 0 0
Player A 4 2 0 2 1
4 3 1 3 2
4 3 4 -1 2

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Ans: A 0 B = [0, 0, 4/7, 3/7, 0] V=[13/7]

0
5/7
2/7

(b) Player B
2 -4 6 -3 1
Player A -3 4 -4 1 0

Ans: A= 4/9 B= [5/9, 0, 0, 4/9, 0] V=[-7/9]

5/9

Year 2000
(a)Consider the following pay-off matrix for two firms. What is the best mixed strategy for both the
firms and also find out the value of the game?
Firm II
No. of Medium Large
advertising advertising advertising
No. of 60 50 40
Firm I advertising
Medium 70 70 50
advertising
Large 80 60 75
advertising
Ans: Firm I = 0 Firm II = [0,5/7,2/7] V= [450/7]
3/7
4/7

(b) Given the value of the game, if possible:

B
1 2 3
1 0 –1 2
A 2 4 4 -3
3 0 3 -4

Ans: A = 7/10 B = [0, 5/10, 5/10] V = [1/2]

3/10
0

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LAST YEAR THEORY QUESTIONS

Year 2001
Explain the concept of dominance in game theory?

Year 2002
What are the basic characteristics of game theory?

Year 2003
Write a critical note on game theory?

Year 2004
Explain the following with example.
(i) Pure and mixed strategy
(ii) Law of dominance

Year 2005
Explain the concept of dominance in game theory?

Year 2006
What is game theory? Explain different types of games?

Year 2007
Write a brief note on graphical method of solution of a game?

Year 2009
Explain the theory of dominance in the solution of rectangular game.

Year 2011
Write short notes on the following:
(i) saddle point
(ii) pay-off matrix
(iii) Concept of dominance

*****

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CHAPTER 6 INVENTORY PLANNING & CONTROL

Inventory is one of the most expensive & significant asset to many company, representing as
much as 40% of total invested capital. The inventory may consist of raw material, work in
progress, spare parts / consumable and finished goods.
It requires effective planning and control as a substantial share of funds is invested in them.
It block the working capital, which is so costly, it is not favorable to have a high level of
inventory.
Inventory required holding and maintenance cost. It carries the risk of spoilage, theft, and
leakage.
Thus, it is very essential to have a tight control over the level of inventory.

MODEL – I: EOQ (with instantaneous supply)

EOQ is that size of order which minimize total annual cost of carrying inventory and cost of
ordering, when the size of order increase, the number of order to be place decrease thus the
ordinary cost will decrease, where the inventory carrying cost will increase.
Total cost

Cost (`) Carrying cost

Ordinary cost
EOQ
Order size (Q)
EOQ = 2RO
C
R = annual requirement
O = ordering cost per order
C = carrying cost

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INVENTORY CONTROL LEVELS
Under this technique various inventory control levels are fixed according to the terms of quantity
to ensure that optimum quantity of inventory is purchased and stored. The technique requires
fixation of stock control in respect of every type of inventory. The different limits fixed are:

(a) Re-order level: This level indicates the time to place order for inventory. It signifies the
action point for procuring the inventory. This level is fixed between the minimum and maximum
levels. The purpose of this level is to indicate time to place order so that stock is not reduced to a
level less than the minimum level.
The formula used for computing Re-order level (ROL) is as follows:

ROL = Maximum Consumption x Maximum Re-order Period

or
ROL = (Lead Time x Usage Rate per day) + Safety Stock.

(b) Maximum Level: This level indicates maximum quantity of inventory to be held at any time.
The quantity of inventory should not exceed this level. This is to minimize inventory-holding
costs.
The maximum level may be calculated by applying the following formula:
Maximum Level = Re-order Level + Re-order Quantity – (Minimum Consumption x
Minimum Re-order Period)
or
Maximum Level = EOQ + Safety Stock.

(c) Minimum Level: This level indicates minimum quantity of stock to be held at any time. This
is to avoid risk of dislocation of production process.
The minimum level can be calculated as follows:
Minimum Level = ROL – (Normal consumption x Normal Re-order Period)

(d) Average Level: It is that level which should be maintained on an average in storehouse. The
formula used for calculating average stock level is as follows:

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Average Stock Level = Maximum + Minimum Level
2
Illustration: 1
Ram purchases an item at the rate of ` 20 per piece from shyam. 2000 units of the item are
required per year. What should be the EOQ if the cost per order is 5 and inventory carrying cost
is 20% of purchase price.
Ans: EOQ = 70.71 & 71 unit

Illustration: 2
A dealer has to supply 200 unit of a product. He gets the product at ` 25 per unit from the
manufacture. The cost of ordering & transportation from the manufacture is ` 37.5 per order. The
cost of holding inventory is 7.5 % per year of the cost of product. Find EOQ & TC.
Ans: EOQ = 89.44 & 5167.7 unit
Illustration: 3
A raw material has a demand of 5000 units per year. The cost of one procurrent is ` 50 & the
holding cost per unit is ` 2.40 per year. Find EOQ & no. of order
Ans: EOQ = 456 unit, no. Of order = 10.96

Illustration: 4
Calculate EOQ & total cost (including purchase cost) from the following data:
Annual demand – 2500 unit
Unit price – ` 2.50
Ordering cost – ` 4.00 per order
Storage rate – 1 % per year
Interest rate – 12% per year
Obsolescence rate – 7 % per year
Ans: EOQ = 200 unit, TC = 6350

Illustration: 5
A purchase manager place order each time for a lot of 500 unit of a particular item. From the
available data the following results are obtained.
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Inventory carrying cost – 40%
Ordinary cost per order – ` 600
Cost per unit – ` 50
Annual demand – 1000 unit
Find out the loss to the organization due to the ordinary policy.
Ans: loss (56200- 54899) = 1301

Illustration: 6
The purchase manager of a company has collected the following data for one of the A– class
items:
Interest on the lack up capital – 20 %
Order processing cost (`) for each order – ` 1000
Inspection cost per lot – 500
Follow up cost for each order – 800
Pilferage while holding inventory – 5%
Other holding cost – 15%
Other procurrent cost per order – 1700
Annual demand – 10000 units
Cost per item – ` 100
Discount for a minimum order quantity of 1500 items is 10%. What should be the ordinary
policy of the purchase manager?
Ans: EOQ = 1414, TC = 1056568.5, EOQ = 1500, TC = 953667

Illustration: 7
A company needs 1000 units annually of an article. The cost per article is ` 20. Order cost per
order is ` 25 and carrying cost is 25% of the cost of article per unit annually. If the company
orders 500 or more units than a discount of 5% is available, determine the most suitable solution.
Ans: EOQ = 100 unit, TC = 20500, EOQ = 500, TC = 20237.5

Illustration: 8
In a factory raw material A and B are used weekly as follows:
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Normal Usage …………150 kg
Maximum Usage ……………….225 kg
Minimum Usage ………………..75 kg

Re-order Quantity A 1200 kg

B 1800 kg
Reorder Period A 4 to 6 weeks
B 2 to 4 weeks
Calculate for each raw martial:
(i) Reorder level
(ii) Maximum stock level
(iii) Minimum stock level
(iv) Average stock level
Ans: (i) A = 1350units B = 900units (ii) A = 2250units B = 2550units (iii) A = 600units B =
450units (iv) A =1425units B =1500units

Illustration: 9
In a Company raw martial is used weekly as following:
Normal Usage 50 units
Minimum Usage 25 units
Maximum Usage 100 units
Reorder Quantity 300 units
Reorder Period 1 to 3 weeks.
Determine the following:
(i)Reorder Level (ii) Minimum Level (iii) Maximum Level and (iv) Average Level
Ans: (i) 300 units (ii) 200 units (iii) 575 units (vi) 387.5 units

MODEL - II: EOQ model with shortage allowed (demand Rate uniform, production Rate
infinite)

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In the previous inventory models, we have not permitted inventory shortages where there was
not sufficient stock to meet current demand. However, there are many situations in business that
suggest that planned shortages or stockouts may be permitted.
Formula:

EOQ = 2RO C + Cs
C Cs

S = EOQ C
C + Cs

T = EOQ/R x 365

TC = TOC + TCC
TCC = EOQ xC Cs
2 C + Cs

M = EOQ - S
Cs = Cost of Back order (Shortage cost)
Where,
S = Optimum quanity of product to backorder (amount of backorder)
M = Maximum inventory level
T = Time between order
R = Annual requirement.

Illustration: 10
A dealer suppliers you the following data relating to an item of inventory:
Annual demand = 2000 units.
Cost of unit = ` 50 per unit
Ordering cost = ` 25 per order
Holding cost = ` 10 per unit per year.
Back order cost = ` 30 per unit per year
Determine:
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(i) EOQ
(ii) Maximum number of back order units
(iii) Maximum inventory level
(iv) Time between order
(v) Total annual variable costs.
Ans: (i) 115 units, (ii) 29 units (iii) 86 units (iv) 21 days (v) ` 866.

LAST YEAR QUESTIONS

YEAR 2011
(a) using data, obtain the EOQ and the total variable cost associated with the policy of EOQ.
Annual demand = ` 20000
Ordering cost = ` 150 per order.
Monthly inventory carrying cost = 2% of average inventory value.

YEAR 2009
A dealer supplies you the following information with regard to a product dealt in by him:
Annual demand: 10000 units; ordering cost: ` 10 per order; Price: ` 20per unit.
Inventory carrying cost: 20% of the value of inventory per year.
The dealer is considering the possibility of allowing some back order (stockout) to occur. He has
estimated that the annual cost of backordering will be 25% of the value of inventory.
(i) What should be the optimum number of units of the product he should buy in one lot?
(ii) What quantity of the product should be allowed to be back ordered, if any?
(iii) What would be the maximum quantity of inventory at any time of the year?
(iv) Would you recommend to allow back-ordering? If so, what would be the annual cost saving
by adopting the policy of back- ordering.
Ans: EOQ = 223.6 units (stockout are not permitted), EOQ = 300 unit (backorder is permitted),
S = 133 units. M = 167 units, TC = ` 894.43 (stockout are not permitted), ` 666.67 (backorder is
permitted)

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YEAR 2008
In an inventory system the cost of placing an order is ` 100/ order. The annual demand is 5000
units and the inventory carrying charge is 2% of the value of inventory per month. The item cost
is ` 75 each.
(i) Calculate EOQ and total system cost if shortage is not allowed.
(ii) If shortages are allowed to back logged at cost of ` 5 per unit short/month, determine EOQ,
maximum stock level, maximum backlog level and the total system cost.
Ans: (i) EOQ = 236, total cost = ` 37924 (ii) EOQ = 269, max backlog level = 62, max inventory
level = 197 units, total cost = ` 378721.

YEAR 2007
Given that:
(i) Annual usage 60 units
(ii) Procurement Cost ` 150 per order
(iii) Cost per piece ` 100
(iv) Inventory Carrying Cost 10%
(A percentage per period including insurance, taxes, obsolescence, etc)
Calculate Economic Order Quantity (EOQ)
Ans: EOQ = 42.42 units

YEAR 2006
A regional warehouse purchase hand tools from various suppliers and then distributed them on
demand to retailers in the region. The warehouse operates five days per week, 52 week per year.
Only when it is open can order be received. The following data are estimated for 3/8-inch hand
drills with double insulation and variable speed:
Average daily demand = 100 drills
Standard deviation of daily demand () = 30 drills
Lead time (L) = 3 days
Holding cost (H) $ 9.40 units/year
Ordering cost (S) = $35/order
Cycle service level = 92%
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[A 92 percent cycle service level corresponding to Z = 1.41 (as per Normal Distribution Table)]
Safety stock = ZL
The warehouse uses a continuous review () system.
(i) What order quantity,  and reorder point R, should be used?
(ii) If on hand inventory is 40 units, there is one open order for 440 drills, and there are no back
order, should a new order be placed?
Ans: EOQ = 440, ROL = 373

YEAR 2005
XYZ Company buys in lots of 5 boxes, which is a 3-month supply. The cost per box is ` 125 and
the ordering cost is ` 150. The inventory cost is estimated at 20% of unit value.
(i) What is the total annual coat of the existing inventory policy?
(ii) How much money could be saved by employing the economic order quantity?
Ans: (i) 3162.5 (ii) EOQ = 16 units, total cost = 2887.5 saving when company follow EOQ
policy (3162.5 – 2887.5) = ` 275

*****

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CHAPTER 7 SIMULATION

Q1 Write short notes on the Monte Carlo simulation.

Answer:
Meaning: Monte Carlo simulation is a special technique of simulation which involves the selection of
random observations within the simulation model.
Usage: It is used to some problems that depend upon probability, where physical experimentation is
virtually unpracticable and it is practically impossible to create mathematical formula.
Advantage: This model is designed in a way that analyst is able to observe. The behaviour of the
system over time and gather useful information about it.
Application: It is used to examine inventory, queing, scheduling and forecasting problems.
Steps:
1. Determination and measure of effectiveness which may be either of
(i) Maximisation of ROI
(ii) Minimisation of inventory holding cost, stock etc.
2. Identification of those variables which Influences the measures of effectiveness significantly.
3 Determination and cumulative probability distribution of each variable selected under steps?
4. Plotting these cumulative probability distribution with probability on the vertical axis and values of
variables on horizontal axis.
5. Obtaining a set of random numbers from tables
6. Now consider each random number as decimal value of the cumulative probability distribution and
enter the cumulative distribution plot from the vertical axis.
7. Now project this point horizontally, until it intersects cumulative probability distribution curve.
Then project the point of intersection down into the vertical axis.
8. Then record the value generated above in the formula derived.
9. Solve and record the value. This value is the objective for that simulated value.
10. Steps 6 to 9 are repeated until sample size is large enough to the satisfaction of the decision maker
A

Q2 What is simulation?
(ii) What are the steps in simulation?
Answer:
(i) Simulation
Meaning: Simulation analysis is a nature and logical extension to the analytical and mathematical
techniques used for solving the problems in OR. It is the representative model for real situations.
Which cannot be represented mathematically due to the stochastic nature of the problem.
Definition: Simulation may be defined as "a quantitative procedure which describes a process by
developing a model of that process and later conducting a series of organized trial and error
experiments to predict the behaviours of the process over a period. In other words, simulation portrays
how the real process would react to certain change."
Objective: It may be noted that the basic objective of simulation is to use devices which are
appropriate for real life situations, to understand the properties behaviour and functional characteristics
of the system. The device used may be a mathematical formula or a physicals model. For example, for
training pilots on new models of aircraft, physicals model of aircraft is necessary as a means of

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experimentation. That is why for investment analysis inventory control etc. mathematical models of
real life situations, may work as simulators.
(ii) Steps involved in Simulation Process
The following are the steps involved generally in a Simulation Process,
1. Identification of the problem or system which is intended to be simulated.
2. Formulation of the model intended to be used.
3. Testing of the model by comparing its behaviour with the behaviour of the actual problem
environment
4. Identification and collection of the data required for testing of the model.
5. Running of the simulation
6. Analysing the results of simulation in case necessary, the solution which is being evaluated may be
changed
7. Re-running of the simulation to test the new solution
8. Validation of the simulation, i.e., the inferences drawn which will be appropriate for running the
simulation valid

Q3 What is Monte Cario simulation? How it is useful in inventory control?

Answer:
Appiication in inventory control
In order to provide efficient service to the customers it is necessary to choose to re-order point with
proper consideration of demand during lead time. If the lead time and demand of Inventory per unit
time both are random variables then, the simulation technique can be applied to determine the effect &
alternate inventory policies on a stochastic inventory system.
The basic approach under this system is to find the probability distribution of the input and out put
functions of the past data. Then the inventory system can be run by generating the future observation

Q4 Outline the limitations of Simulation.

Answer:
Limitation of simulation are as follows.
1. Simulation provides only a set of responses to the system under different operating conditions, it is
not an optimisation process,
2. All situations cannot be evaluated by using simulation approach.
3. Simulation is a time consuming process.
4. Simulation does not create or generate solution technique.
5. Heavy costs may have to be incurred for formulation and application of a good simulation model.

Q5 What are the shortcomings in the use of simulation approach in solving operations research
problems?
Answer:
Shortcomings in the use of simulation approach in solving operations research problems:
— Simulation is not an optimization process. It only provides a set of system's responses to different
operating conditions.
— A good simulation model may be very expensive
— Not all situations can be evaluated by using simulation.
— Simulation does not generate the solution techniques.
— It is a time consuming exercise.

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INVENTORY PROBLEM

Illustration: 1
A trader deals with a perishable commodity. The daily demand and purchases of which are random
variable. Records in the past shown the following:
Purchase Demand
Quantity No. of days Quantity in kg No. of days
10 40 10 50
20 50 20 110
30 190 30 200
40 150 40 100
50 70 50 40
The trader buys the commodity at ` 20 per kg and sells at ` 30 per kg. If any of the commodity remain
at the end of day. It has no sellable value. The loss through unsatisfied demand is ` 8 per kg. The
following random numbers are given. Simulate 6 days trading and find the total profit.
Random no. is (31, 18), (63, 84), (15, 79), (07, 32), (43, 75), (81, 27)
Use the random no. Alternatively that is 1st to simulation purchase and 2nd is simulation demand.
Ans: net profit = 400 `

CAPITAL BUDGETING

Illustration: 2
An investment corporation wants to study the investment projects based on three factors – market
demand in units, price per unit – cost per unit, the investment required.
These factors are felled to be independent of each other. In analyzing a new consumer product. The
corporation estimates the following probability distribution.

Annual Probability Price per unit - Probability Investment Probability

units Cost per unit required
Demand rupees
25000 .05 3 .10 2750000 .25
30000 .10 5 .20 3000000 .50
35000 .20 7 .40 3500000 .25
40000 .30 9 .20
45000 .20 10 .10
50000 .10
55000 .05
Using simulation process, repeat the trial 10 times, calculate the return on investment for each trial
taking these three factors into account, which is the most likely return.
Use the following first, ten random numbers for annual demand, next ten for price – cost per unit, and
the rest for investment required (30,59,63,27,64,28,31,54,64,32) (12,09,94,08,60,28,23,85,68,31)
(16,69,26,74,61,72,57,20,18,87)
Ans: highest return = 13.33%, annual demand = 40000 unit, profit per unit = ` 10, investment =
3000000

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Illustration: 3
Production line turns out about 50 trucks per day; fluctuations occur for many reasons. The production
can be described by a probability as follows:
Production Probability Train transports finished trucks at the end of day. If train capacity is
per day only 51, what will be average no. of trucks waiting to be shipped
45 0.03 and what will be the average no. of empty spaces on the train? Use
46 0.05 the following sequence of random numbers to simulate the
47 0.07 production for next 8 days. Random numbers are: 37, 35, 63, 25,
48 0.10 50, 71, 95, and 16.
49 0.15
50 0.20 Ans: average no. Trucks waiting to be shipped = 3/8, empty space
51 0.15 = 10/8
52 0.10
53 0.07
54 0.05
55 0.03

Illustration: 4
A book store wishes to carry Ramayana in stock. Demand is probabilistic and replenishment of stock
take 2 days that is if an order is placed on March 1 it will be delivered at the end of the day on March 3
and will be entered in books next morning. The probabilities of demand are given below:
Demand Probability Each time an order is placed the store incurres an ordering cost of `.
0 .05 10 per order. The store also incurres a carrying cost of ` 0.50 per
1 .10 book per day. The inventory carrying cost is calculated on the basis
2 .30 of stock at the end of each day.
3 .45 The manager of the bookstore wishes to compare two options for his
4 .10 inventory decisions.
(i)Order 5 books when the inventory at the end of the day, plus orders
outstanding is less than 8 books.
(ii)Order 8 books when the inventory at the end of the day, plus orders outstanding is less than 8
books.
Currently that is beginning of first day, the store has a stock of 8 books + 6 books ordered 2 days ago
and expected to arrive next morning.
Using Monte Carlo simulation for 10 cycles recommend which option the manager should select. The
two digit random number are given below:
89, 34, 78, 63, 61, 81, 39, 16, 13, 73.
Ans: (i) 59.5 ` (ii) 52.5 `

Illustration: 5
A process involves the production of a particular component which is then installed into an end
product. Past observations have indicated that the average production time for the component
fluctuates and the following probability distribution has been derived.

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Minutes Probability The average time taken to install a component also fluctuates and the
2 .10 following probability distribution has been derived.
3 .25
Minutes Probability
4 .40
2 .30
5 .10
3 .45
6 .10
4 .15
7 .05
5 .10

The current system uses one operative for installation but company is considering employing another
operative on the installation process. Find the ideal time and waiting time for installation.
Simulate 10 arrivals on the current system using the following. 10 random numbers for arrivals and the
next 10 for installation.
Random number [20, 74, 94, 22, 93, 45, 44, 16, 04, 32] [03, 62, 61, 89, 01, 27, 49, 50, 90, 98]
Ans: Total ideal time =14 minutes Total waiting Time= 4 minute

MAINTENANCE PROBLEM

Illustration: 6
A plant has a large number of similar machines. The machine break down or failures are random and
independent. The shift in charge of the plant collected the data about the various machinery
breakdown time and repair time required on hourly basis. The probability distribution is as follows.
Time between machine break down (in hrs) Probability
½ .05
1 .06
1½ .16
2 .33
2½ .21
3 .19

Repair Time (in hrs) Probability

1 .28
2 .52
3 .20
For each hours that one machine is break down is idle to bring repaired or waiting to be repaired the
plant looses ` 70 by way of lost production A repairman is paid ` 20 per hour.
Simulate the maintenance system for 15 breakdowns and find the total maintenance cost if we hire one
repairman.
It can be assumed that the first day beginning at midnight and all the other operations start at 00 hrs.
The Random Numbers are follows:
61 85 16 46 88 08 82 56 22 49 44 33 77 87 54 87 39 28 97 69 87 52 52 15 85 41 82 98 99 23
Use first 15 Random no. for Break Down and next 15 for repairs.
Ans: Maintenance cost = (waiting to be repaired + repair time)*70
(21.5+35)*70 = 3955 Repair men’s wages = 35*20 = 700
Total Maintenance Cost = 3955+700 = 4655

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LAST YEAR QUESTIONS

YEAR 2011
(a) A company manufactures 30 units per day. The sales of these items depends upon demand
which has the following distribution:
sales (units) probability
27 0.10
28 0.15
29 0.20
30 0.35
31 0.15
32 0.05
The production cost and sales price of each unit are ` 40 and ` 50 respectively. Any unsold product is
to be disposed off at a loss of ` 15 per unit. There is a penalty of ` 5 per unit if demand is not met.
Using the following random numbers, estimate the total profit /loss for the next days:
10,99,65,99,95,01,79,11,16,20
If the company decides to produce 29 units per day, what is the advantage or disadvantage of the
company?

YEAR 2000
An automobile company manufactures about 150 scooters. The daily production varies from 146 to
154 scooters depending upon availability of raw material and other working conditions
Production per day Probability The finished scooters are transported in a specifically
146 0.04 arranged lorry accommodating 150 scooters. Using the
147 0.09 following random numbers:
148 0.12 80, 81, 76, 75, 64, 43, 18, 26, 10, 12, 65, 68, 69, 61, 57.
149 0.14 Simulate the process to find out:
150 0.11 (1) What will be the average numbers of scooters
151 0.10 waiting in the factory?
152 0.20 (2) What will be the average no. of empty space in the
153 0.12 lorry?
154 0.08
YEAR 2002
The number of machines arriving per day at a factory repair bench has been noted over a long period
of time and found to have the following distribution:
No. of arrivals 0 1 2 3 4 5 6 7 8 9
Percentage 2 7 15 20 20 16 10 6 3 1
Repair times depend on the type of fault and number of repairs completed per day. They have been
recorded and found to be represented by-
No. of repairs 1 2 3 4 5 6 7 8 9 10
Percentage 4 8 14 18 18 15 10 7 4 2

Simulate 25 days to find the maximum queue length. Use the following series of random numbers.
(Alternatively for both the cases of arrival and repair)
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55 86 87 70 05 71 69 29 74 73
37 17 42 16 89 98 35 81 07 16
94 42 27 18 13 70 05 36 86 85
02 79 13 35 37 38 57 19 97 38
45 82 40 32 63 29 10 67 41 99
Ans: maximum queue length = 5 machine

YEAR 2003
The investment corporation wants to study the investment projects based on three factors: market
demand in units, price per unit minus cost per unit and investment required.
These factors are felt to be independent of each other. In analyzing a new consumer product, the
corporation estimates the following probability distributions:
Annual demand Price minus cost per unit Investment required
Units Probability ` Probability ` Probability
20000 0.05 3.00 0.10 1750000 0.25
25000 0.10 5.00 0.20 2000000 0.50
30000 0.20 7.00 0.40 2500000 0.25
35000 0.30 9.00 0.20
40000 0.20 10.00 0.10
45000 0.10
50000 0.05

Random numbers for demand Random numbers for investment

28 18
57 61
60 16
17 71
64 43
20 68
27 47
58 24
61 19
30 97
Using the simulation process, repeat the trial 10 times, compute the return on investment for each trial
taking these three factors into account. Approximately what is the most likely return?
ASSUME: Random number for demand is same for (price cost)
Ans: highest return = 14%, annual demand = 35000 unit, profit per unit = `7, investment = 1750000

YEAR 2004
A company maintains a bank of machines, which are exposed, to severe service causing bearing
failure to be a common maintenance problem. There are three bearings with machine that cause
trouble. The prevailing practice is to replace the bearings at the time of their failure from the past
experience the company obtains the bearing life distribution as follows:

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Bearing life (hrs) Frequency / 100
1000 5
1200 15
1400 25
1600 20
1800 15
2000 12
2200 6
2400 2
Using the following data, find out the total cost involved in replacing the bearing for a working period
of 4000 hrs.
Maintenance mechanic’s time to replace
One bearing = 5hrs, bearing cost = ` 300 each
Down time cost = ` 15/hrs
Random numbers are: 11,30,60,27,32,34,18,90,42,28,58,54.
Ans: Average cost = ` 1156.25 for 4000 working hours.

YEAR 2005
The manager of a warehouse is interested in designing an inventory control system for one of the
products in stock. The demand for the product comes from numerous retail outlets and order arrives on
a weekly basis. The warehouse receives its stock from the factory but the lead-time in not constant.
The manager wants to determine the best time to release orders to the factory so that stock outs are
minimized, yet inventory holding cost are at acceptable level. Any order from retailers not supplied on
a given day constitutes lost demand. Based on a sampling study, the following are available: -
Demand per week Probability Lead Time Probability
(in thousands)
0 .20 2 .30
1 .40 3 .40
2 .30 4 .30
3 .10
The manager of the warehouse has determined the following cost parameter: ordering cost (Co) per
order equals ` 50, carrying cost (Ch) equals ` 2 per thousand units per week, and shortage cost (Cs)
equals ` 10 per thousand units.
The objective of inventory analysis is to determine the optimal size of an order the best time to
place an order. The following ordering policy has been suggested.
Policy

Whenever the inventory level become less than or equal to 2000 units (reorder level), an order equal to
the difference between current inventory balance and the specified maximum replenishment level is
equal to 4000 unit is placed.
Simulate the policy for 10 weeks period assuming that the:
(i)Beginning inventory is 3000 units
(ii)No back order are permitted
(iii)Each order is placed at beginning of week as soon as inventory level is less than or equal to the
reorder level
(iv)The replacement orders are received at beginning of the week.
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Use the following Random Number: -
Random Number for Demand: 31 70 53 86 32 78 26 64 45 12
Random Number of Lead Time: 29 83. Calculate weekly average cost.
Ans: ordering cost = 50 x 2 = 100, Holding cost per week = 6 + 6 + 4 = 16, Shortage costing = 70,
Total cost = 186

YEAR 2006
A dentist scheduled all his patients for 30 minutes appointments. Some of the patients take more or
less then 30 minutes depending on the type of dental work to be done. The following summary shows
the various categories of work, their probability and time actually needed to complete the work.
Category of service Time required (minutes) Probability of Category
Filling 40 .40
Crown 65 .15
Cleaning 20 .15
Extraction 45 .10
Check Up 20 .20
Simulate the dentist clinic for 4 hrs and determine the average waiting time for the patient as well as
the idleness to the doctor. Assume that all the patient show up at the clinic at exactly there schedule
arrival time at 8.00 A M.
Use the following random Number for handling the above problem. 40 82 11 34 25 66 17 79
Ans: Average waiting time = 36.875 minutes, idle time of doctor = nil

*****

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CHAPTER 8 DECISION THEORY

DEFINITION
A process which results in the selection from a set of alternative courses of action, that
course of action which is considered to meet the objectives of the decision problem more satisfactorily
then others as judged by the decision maker.
Decision-making is defined as “a process of selecting an act judged to be the best according to
some pre-determined criterion”. Decision-making is a rational analysis of the problem, which helps the
management to reach to some decision.

Few management applications of decision theory:

1. Select the best from among several job offers.
2. Select the best way to build a modern electronic component.
3. Determine whether or not to expand a medical or manufacturing facility.
4. Determine if a large plant, small plant, or no plant should be built.

DECISION MAKING ENVIRONMENT

The decision maker should have knowledge about the situation under which he or she has to
take decisions. There are three major types of decision making situations:

1.Decision making under certainty:

Complete and accurate knowledge of the outcome of each alternative. There is only one outcome for
each alternative.

2. Decision making under risk:

Multiple possible outcomes of each alternative can be identified, and a probability of occurrence can
be attached to each.

3. Decision making under uncertainty:

Multiple outcomes for each alternative can be identified, but there is no knowledge of the
probability to be attached to each.

I. Decision making under certainty:

In this environment the decision maker knows with certainty the consequence of selecting
every course of action or decision choice. In this type of decision problems the decision maker
presumes that only one state of nature is relevant for this purpose. He identifies this state of nature,
takes it for granted and presumes complete knowledge as to its occurrence. For e.g. suppose a person
has `. 500000 to invest for a one year period. One alternative is to open a saving account paying 4
percent interest and another is to invest in a government Treasury note paying 9 percent interest. If
both investments are secure and guaranteed, then there is a certainty that the Treasury note will be the
better investment.

II. Decision making under risk:

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In this situation, the decision maker faces several states of nature. But he is supposed to have
believable evidential information, knowledge, experience, or judgment to enable him to assign
probability values to the likelihood of occurrence of each state of nature. Probabilities could be
assigned to future events by reference to similar previous experience and information. Sometimes past
experience or past records often enable the decision maker to assign probability values to the likely
possible occurrence of each state of nature knowing the probability distribution of the states of nature;
the best decision is to select that course of action which has the largest expected pay off value.

III. Decision making under uncertainty:

Under this condition, the probabilities associated with occurrence of different states of
nature are not known, i.e. there is no historical data available or no relative
frequency which could indicate the probability of the occurrence of a particular state of nature. In
other words the decision maker has no way of calculating the expected pay off for this course of action
or strategies. Such situations arise when a new product is introduced in the market or a new plant is set
up. In business situations there are many problems of this nature and here the choice of a course of
action is very largely dependent on the personality of the decision maker and the policy of an
organization. The number of different decision criteria available under the condition of uncertainty.
 Maximum criterion or optimism.
 Maximum criterion or pessimism.
 Minimax regret criterion.
 Hurwitz criterion.
 Laplace criterion.

DECISION TREE
One of the devices for representing a diagrammatic presentation of sequential and multidimensional
aspects of a particular decision problem for systematic analysis and evaluation is ‘decision tree’ –
whereby the decision problem, alternative courses of action, states of nature and the likely outcomes of
alternatives are diagrammatically or graphically depicted as if they are branches and sub branches of
‘horizontal tree’.
A decision tree consists of network of nodes, branches, probability estimates and payoffs. Nodes are of
two types, decision- node (designated as a square) and chance node (designated as a circle).
Alternatively course of action or strategies originate from the decision node to the main branches
(decision branches).

PORTRAY OF A DECISION TREE

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O1
A3
CHANCE BRANCH A4 S5 O2

S1 (STATE OF NATURE) S6 O3
CHANCE NODE S7 O4
A1 S2 A5
DECISION S8 O5
BRANCH S9 O6
A6
DECISION NODE S1O O7
A2 (COURSE OF ACTION) O8
S3 S11 O9

S4 A7 S12 O10

A8 S13 O11

S14 O12

ADVANTAGES OF DECISION TREE

 Decision tree diagram is useful for portraying the inter related, sequential and multi
dimensional aspects of any major decision problem within the systems framework.
 Focuses attention on the critical elements in a decision problem over the duration of its
solution, apart from bringing to light the relationship between the presently available course of
action and the network of future events.
 Decision tree device is especially useful in cases where an initial decision and its outcome
affect the subsequent decisions and where the decision maker has to make a sequence of
decisions on major decision problem.

Illustration: 1
Mr. X is on a point to decide whether to stock paddy or rice crops. If he stock paddy and if it is a
success he hopes that he can earn a profit of `. 10000 and if it is a failure he will loose ` 2000. If he
stocks rice and if it is success he can earn `. 20000 but if is a failure he will lose `. 5000. Keeping in
view the following advice Mr. X what to stock.
Paddy Rice
Success .6 .3
Failure .4 .7
Ans: EMV=5200

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Q2. Malpani publication have to take a decision regarding publication of any of the three projects
offered by an author, such as – statistical method, Q.T, and business mathematics. The probability
distribution of these 3 projects have been estimated as under:
Very good Good Fair Poor
S.M .40 .30 .20 .10
Q.T .50 .25 .15 .10
B.M .25 .40 .20 .15
Are as under:
Very good Good Fair Poor
S.M 40000 30000 10000 -5000
Q.T 45000 15000 5000 -3000
B.M 50000 20000 10000 -5000
Construct a decision tree and advice malpani publishers about which project to undertake?
Ans: EMV=26700

Q3. Mr. Jaitley has to make a decision. He has four alternatives D1, D2, D3, D4 when the decision has
been made events may lead such that any of the four result may occur. The results are R1, R2, R3, R4
probabilities of occurrence of these results are as follows:
R1 = .5 R2 = .2 R3 = .2 R4 = .1
The matrix of pay off between the decision and the results is as follows:
R1 R2 R3 R4
D1 14 9 10 5
D2 11 10 8 7
D3 9 10 10 11
D4 8 10 11 13
Show this decision situation in the form of a decision tree and indicates the most preferred decision.

Q4 An organization has two packaging machines: old and new. The new machine is more efficient if
the materials are of good quality; on the other hand the old machine performs better if the materials are
of poor quality. The following information is available:
(i) In the previous batches 80% of the materials have been of good quality and 20% of poor quality:
(ii) The profit position is as under:
(a) Using old machine:
If the materials are good profit of ` 2000
If the materials are poor profit of ` 1600
(b) Using new machine:
If the materials are good profit of ` 2400
If the materials are poor profit of ` 800
You have to decide which machine should be used under the condition that quality of the materials is
not known at this stage.
Ans: EMV = 2080

Q5 The Indian Yacht Company has developed a new cabin, cruiser which they have earmarked for the
medium to large boat market. A market analysis has a 30% probability of annual sales being 5000
boats, a 40% probability of 4000 annual sales and a 30% probability of 3000 annual sales. This
company can go into limited production, where variable costs are ` 10000 per boat and fixed costs are
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` 800000 annually. Alternatively, they can go into full scale production, where variable costs are `
9000 per boat, and fixed costs are ` 5000000 annually. If the new boat is to be sold for ` 11000,
should the company go into limited or full scale production when their objectives is to maximize the
expected profits?
Ans: EMV = 32

Year 2013
Q6 A manager has a choice between two options
i) A risky project promising Rs 10 lac with a probability of 0.6 and Rs 6 lac with a probability of 0.4.
ii) A diversified portfolio comprising of two projects with independent outcomes each paying Rs 5 lac
with a probability of 0.6 and Rs 3 lac with a probability of 0.4.

Construct decision tree for using expected monetary value criteria. What is the optimal decision in this
case?
Ans: EMV = 8.4 lac

Q7 A farm owner is considering of drilling a farm well. In the past only 70% of well drilled were
successful at 200 feet of depth in that area. If there is no water 200 feet, some person drilled it up to
250 feet but 20% stuck water at 250 feet. The prevailing cost of drilling is ` 50 per feet. The farm
owner has estimated that in case he does not have his own well, he will have to pay ` 15000 over the
next 10 years (in present value terms) to buy water from his neighbour. Determine the farm owner
strategy using decision tree approach.
Solution: The decision tree for the above problem will be as follows:

Water struck 10000

P = 0.7

Water struck 12500

P = 0.2
No water
Drill upto 200 feet Drill upto 250 feet
P = 0.3

D2 No water 27500
D1
P = 0.8

Do not drill 25000

(10000 +15000)
Do not drill
15000

Using backward pass method we shall take the decision at decision node D2 first and then use its
result to arrive at a decision at D1

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Decision Node D2
Alternatives State of nature P Outflow Expected
outflows
1 Drill upto 250 feet Water struck .2 12500 2500
No water struck .8 27500 22000
24500
2 Do not drill 25000
Decision: drill upto 250 feet if no water struck at 200 feet

Decision Node D1
Alternatives State of nature P Outflow Expected
outflows
1 Drill upto 200 feet Water struck .7 10000 7000
No water struck .3 24500 7350
14350
2 Do not drill 15000
Decision: drill upto 200 feet.
So, the optimal strategy is to drill up to 200 feet and if no water is struck then further drill up to 250
feet.
Year 2012
Q8 The Iron-ON-Steel has opportunity to enter into a very competitive market. To enter this market
IOS must either install a new forging process or pay overtime wages for entire workforce. The market
entry could result in:
i) High sales
ii) Medium sales
iii) Low sales
iv) No sales
The management of IOS has estimated that, if they enter the market, there is 60% chance of their
stockholders approving the installation of the new forge. A random sample of the market reveals that
IOS has a 40% chance of achieving high sales, a 30% chance of achieving medium sales, a 20%
chance of achieving low sales and a 10% chance of achieving no sales. Further the market analysis
have indicated that a high level of sales will yield Rs 10 lac profit, a medium level of sales will result
in Rs 6 lac profit, a low level of sales will result in Rs 2 lac profit, and a ‘no sales' level will cause a
loss of Rs 5 lac plus any equipment cost. Entering the market require a cash outlay of either Rs 3 lac to
purchase and install a forge or f 1 lac for overtime expenses. Should the second option be selected for
implication? What is the optimal course of action? Use Tree-diagram to conclude with your decision.
Ans: EMV = 1.88 (Second Option)

PAY OFF MATRIX

A table, which gives payoffs for different combinations of acts and events, is called payoff matrix.

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State of nature (1) Decision alternatives or acts (Stock)
(Demand) A1 A2… An…
E1 011 012.. 01n
E2 021 022.. 02n
. . . .
. . . .
. . . .
Em 0m1 0m2 0mn
(1) Alternative plans of actions or strategies: The problem of decision-making arises only when a
number of alternatives are available. The various courses of action available to the decision maker are
known as acts and the rule or set of rules on the basis of which a decision maker selects a particular act
or alternative is called strategy.

(2) States of nature or events: The out come upon selecting an act by the decision maker depends on
certain factors, which are often uncontrollable. These uncontrollable factors are called states of nature
(or events states). An occurrence or a situation over which decision maker has no control is called
states of nature or events. (For e.g., suppose that the sales of an item depends on tomorrows weather,
then tomorrows weather conditions are states of nature).

(3) Outcome or payoffs: For each combination of an act and event (strategies and state of nature)
there will exist an outcome. This outcome may be expressed in terms in terms of monetary or non-
monetary measure. This outcome is generally referred by the term “PAYOFFS”.

(4) Opportunity loss or regret: It is the desire of every decision maker to select the best act under the
situations. The amount of profit foregone by not choosing the best alternative for given state of nature
is called opportunity loss or regret (regret of the Jth alternative when ith event occurs is = maximum
payoff for the occurrence of ith event – conditional payoff Oij)

DECISION RULES FOR DECISION MAKING UNDER UNCERTAINTY

(a) Maximum criterion:

Two steps using these criteria:
(i)Determine the maximum payoff for each act.
(ii) Choose the act, which corresponds to maximum of the above minimum payoffs

(b) Maximin criterion:

Two steps in using these criteria:
(i) Determine the minimum payoff for each act.
(ii) Choose the act, which corresponds to maximum of the above minimum payoffs.

(c) Minimax regret criterion:

The decision maker using this criterion locates the maximum regret for each act and then selects that
act which has minimum regret in the above located maximum regrets.

(d) Hurwitz criterion:

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In this criterion the decision maker take into account both the maximum and minimum payoffs of each
act and assign them weights depending upon his degree of optimism. The alternative for which the
weighted sum of both the payoffs is maximum is selected as optimum act.

(e) Laplace criterion:

The laplace criterion uses all the information given in the payoff table by assigning equal probabilities
to all the payoffs of each act and then selecting that alternative which corresponds to the maximum,
weighted payoff.

Example 1 The payoff table:

States of nature Acts (Stock Level)
(Demand) S1 S2 S3
N1 4000 20000 20000
N2 -100 500 15000
N3 6000 400 -200
N4 18000 0 1000
Calculate (i) Maximax criterion
(ii) Maximin criterion
(iii) Minimax regret criterion
(iv) Hurwitz criterion (optimistic degree .7)
(v) Laplace criterion.
Solution:
The payoff table
States of nature Acts
S1 S2 S3
N1 4000 20000 20000
N2 -100 500 15000
N3 6000 400 -200
N4 18000 0 1000
Maximax payoff 18000 20000* 20000*
Minimin payoff -100 0* -200
Conclusion
(i) Maximax criterion yield the maximum payoff at S2 and S3 act (20000)
(ii) Maximin criterion yield the maximum of minimum payoff at S2 (0)
(iii) Minimax regret criterion

Regret table
States of nature Acts
S1 S2 S3
N1 16000 0 0
N2 15100 14500 0
N3 0 5600 6200
N4 0 18000 17000
Minimax payoff 16000* 18000 17000
Conclusion
Under minimax regret criterion businessman would select S1 (16000)
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(iv) Hurwitz criterion

Index of optimistic is .7
Index of pacimistic is .3
S1 = .7*18000+. 3*-100 = 12570
S2 = .7*20000+ .3*0 = 14000
S3 = .7*20000+ .3*-200 = 13940

Conclusion
Under hurwitz criterion business would select S2 (14000)

(v) Laplace criterion

States of nature Probability Acts
S1 S2 S3
N1 1/4 4000 20000 20000
N2 1/4 -100 500 15000
N3 1/4 6000 400 -200
N4 1/4 18000 0 1000
S1 = ¼(4000-100+6000+18000) = 6975
S2 = ¼(2000+500+400+0) = 5225
S3 = ¼ (20000+15000-200+1000) =8950

Conclusion
Under Laplace criterion business would select S3 (8950)
Expected monetary value criterion:
The expected monetary value criterion requires the analyst to compute the expected value for each
decision alternative and select the alternative yielding the best expected value.

Q1 Using EMV criterion decides which act can be chosen as optimal in the following payoff matrix.

State of nature Probability Acts

A1 A2 A3

E1 0.3 -120 -80 100

E2 0.5 200 400 -300
E3 0.2 260 -260 600
Ans: A2 (124)

Expected value of perfect information (EVPI):

It is the maximum amount decision maker would be willing to pay to acquire perfect information as to
which event would occur.
EVPI =expected payoff under perfect information – expected monetary value of optimal act.
EVPI = EPPI – EMV
EVPI = EOL (expected opportunity loss)
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Year 2013
Q2 A physician purchases a particular medicine on Monday of each week. The medicine must be used
within the week following, otherwise it becomes worthless. The medicine costs ` 2 per dose and
physician charges ` 4 per dose. The past 50 weeks records of uses are as follows:
Doses per week 20 25 40 60
No. Of weeks 5 15 25 5
Find (i) EMV (ii) EOL (iii) EVPI
Ans: EMV = 54 (stock 40 unit), EOL = 17, EVPI = 17, EPPI = 71

Q3 A Fruit seller purchases fruits at ` 50 per kg. Fruit sell for 70 per kg. In case the fruits are not sold
then on next day are sold at ` 10 per kg. The demand are as follows:
Demand (in kg) Probability
10 .15
11 .20
12 .30
13 .25
14 .10
Find (i) EMV (ii) EOL (iii) EVPI
Ans: (i) EMV = 211 (ii) EOL = 28 (iii) EVPI = 28

Q4 A certain output is manufacture at ` 8 and sold at ` 14 per unit. Unsold goods are worthless. The
records in the past are as follows:
Demand per day No. Of days
30 24
40 24
50 36
60 24
70 12
Calculate EMV, EOL, EVPI
Ans: (i) EMV = 216 (ii) EOL = 72 (iii) EVPI = 72
Q5 A factory produces three varieties of fountain pens. The fixed and variable costs are given below:
Fixed cost Variable cost (per unit)
Type 1 ` 200000 ` 10
Type 2 ` 320000 `8
Type 3 ` 600000 `6
The likely demand under three situations is given below:
Units
Demand poor 25000
Demand moderate 100000
Demand high 150000
If the sales price of each type is ` 20 prepare the pay off table after showing the necessary
calculations:

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Ans: Payoff table
Demand Type
T1 T2 T3
D1 50000 -20000 -250000
D2 800000 880000 800000
D3 1300000 1480000 1500000

Q6 A retailer has to decide as to the optimum number of units to be stocked of a certain item under the
following conditions:
(a) Cost price in season ` 12
(b) Selling price in season ` 18
(c) Bargain price after season ` 9
(d) Cost of holding an item beyond season Re 1
The probability distribution of demand based on past data is as follows:
Units demanded 7 8 9 10 11
Probability .20 .20 .25 .15 .20
Determine the optimum stock level based on expected monetary value criterion:
Ans: EMV = 48

QUESTIONS RELATED TO COST TABLE

Q1 A distributor of a certain product incurred holding cost of ` 100 per unit per week and shortage
cost of ` 300 per unit. The data of the sales of the product are given below:

Weekly sales (units) 0 1 2 3 4 5 6 7 8

No. Of weeks 0 0 5 10 15 15 5 0 0
(frequency)
How many units should the distributors buy every week?
Also find EVPI.
Ans: EC = 130, ECPI = 0, EVPI = 130, EOC = 130

Q2 A motor parts dealers find that the cost of a particular item in stock for a week is ` 20 and cost of a
unit shortage is ` 50. The probability distribution is as follows:

Demand (in Units) Probability

1 .1
2 .1
3 .2
4 .2
5 .15
6 .25
Ans: EC = 38.5, ECPI = 0, EOC = 38.5, EVPI = 38.5

Q3 The probability distribution of monthly sales of an item is as follows:

Monthly sales (units) 0 1 2 3 4 5 6
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Probabilities .01 .06 .25 .30 .22 .10 .06
The cost of carrying inventory (unsold during the month) is ` 30 per unit per month and cost of unit
shortage is ` 70.
Required: Determine optimum stock to minimize expected cost. Also calculate EVPI.
Ans: EC = 46, EVPI = 46

Q4 The cost of procurement of an item is ` 30. The cost of carrying an unsold item in stock is ` 10 per
day. The cost of a unit shortage is ` 50. The demand of an item can be 0 to 4 units per day.
You are required:
(a) To set up cost table
(b) To find minimax and minimin strategies
(c) To find the expected demand, optimum strategy and expected value of perfact information if the
probability distribution of demand for past 300 days is as under:
Demand 0 1 2 3 4
No. of days 30 30 60 60 120
Ans: Minimin = 0, Minimax = 140, ECPI = 81, EC = 113, EVPI = 32.

LAST YEAR QUESTIONS

Year 2012
(a) M/s C.K. singh and Co. have three alternatives open, each of which can be followed by any of four
possible events. The conditional pay offs (in `) for each action event combination are given.
Pay offs
Alternative A B C D
X 8 0 -10 6
Y -4 12 18 -2
Z 14 6 0 8

Determine which alternate should the company choose, if they adopt the
(i) Maximin criterion
(ii) Maximax criterion
(iii) Hurwic criterion (degree of optimism 0.70)
(iv) Laplace criterion

(b) Indicate the difference between decision making under risk and under uncertainity in decision
theory.

Year 2011
(a) What do you mean by statistical decision theory? What is the difference between decision making
under uncertainity and risk? Prepare conditional profit and conditional opportunity loss tables by
taking imaginary figures.

A producer of boats has estimated the following distribution of demand for a particular kind of boat.
No. of 0 1 2 3 4 5 6
demand
Probability 0.14 0.27 0.27 0.18 0.09 0.04 0.01
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Each boat costs him ` 7000 and he sells them for ` 10000 each. Any boat that is left unsold at the end
of season must be disposed off for ` 6000 each. How many boats should be in stock so as to maximize
his expected profit?
Ans: EMV = 4080(Stock 3 Boats)

(b) “Model building is the essence of decision making”. Explain.

Year 2009
(a) What do you understand by decision making with imperfect information? Explain the decision
theory in short, with reference to experimental approach.

(b) The manager of a flower shop promises its customers delivery with in four hours on all flower
orders. All flowers are purchased on the previous day and delivered to parper by 8.00 a.m the next
morning. The daily demand for roses is as follows:
Dozen of roses 70 80 90 100
Probability 0.1 0.2 0.4 0.3
The manager purchases roses for ` 10 per dozen and deals them for ` 30. All unsold roses are donated
to a local hospital. How many dozens of roses should parper order each evening to maximize its
profit? What is the optimum expected profit?

Year 2008
A news paper boy has the following probability of selling a magazine:
No. of copies sold 10 11 12 13 14
Probability 0.10 0.15 0.20 0.25 0.30
Cost of a copy is ` 1.50 and selling price is ` 2. He cannot return the unsold copies. How many copies
should he order? Also find EVPI.

Year 2007
Shivaram is the manager of a large farm with 1000 acres of arable land. For greater efficiency,
Shivram always devotes the farm to growing one crop at a time; he now needs to make a decision on
which one of four crops to grow during the upcoming season. For each of these crops, Shivram has
obtained the following estimates of crop yields and net incomes per bushel under various weather
conditions.
Expected yield bushels/ acre
Weather Crop 1 Crop 2 Crop 3 Crop 4
Dry 20 15 30 40
Moderate 35 20 25 40
Damp 40 30 25 40
Net income per bushel ` 50 ` 75 ` 50 ` 25
(Bushel is unit to measure quantity of crop)
After referring to historical meteorological records, Shivram also estimated following prior
probabilities for the weather during the growing season:
Dry moderate damp
0.3 0.5 0.2
(i) Develop a decision analysis formulation of this problem by identifying the decision alternatives, the
states of nature and the pay off table.
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(ii) Use Baye’s decision rule to determine which crop to grow.

Ans: (i) Decision Alternatives

States of nature Pro Crop 1 Crop 2 Crop 3 Crop 4
b
p q1 r1q1 pq1r1 q2 r2q2 pq2r2 q3 rq3 pq3r3 q4 r4q4 pq4r4
Dry 0.3 20 1000 300 15 1125 337.5 30 1500 450 40 1000 300
Moderate 0.5 35 1750 875 20 1500 750 25 1250 625 40 1000 500
Damp 0.2 40 2000 400 30 2250 450 25 1250 250 40 1000 200
Expected net income per acre
` 1575 ` 1537.5 ` 1325 ` 1000

(ii) EMV = 1575 (Crop 1)

Year 2006
(a) Explain decision making under certainty and decision-making under risk.

(b) A departmental store with a bakery selection is faced with the problem of how many
cakes to buy in order to meet the days demand. The departmental store prefers not to sell day old in
competition, leftover cakes are, therefore, a complete loss. On the other hand, if a customer desires a
cake and all of them have been sold, the customer will buy elsewhere and the sales will be lost. The
store has, therefore, collected information on the past sales based on selected 100 days period as
shown in the following table:
Sales per day 15 16 17 18
No. Of days 20 40 30 10
Probability 0.20 0.40 0.30 0.10
Construct the conditional profit and the opportunity loss tables. What is the optimal number of cakes
that should be bought each day? A cake costs ` 2.00 and sells for ` 2.50.
Ans: EMV = 7.50(purchase quantity 15 or 16), EOL = .65, EVPI = .65

Year2011, 2005
(a) Explain different techniques used for decision-making under uncertainty with suitable examples.

(b) A newspaper boy has the following probability of selling a magazine:

No. Of copies sold 10 11 12 13 14
Probability 0.10 0.15 0.20 0.25 0.30
Cost of copy is 30 paise and selling price is 50 paise. He cannot return unsold copies. How many
copies should he order? Also find EVPI.
Ans: EMV = 2.225(12 units), EVPI = .275

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Year 2004
(a) Give the following payoff table:
State of nature Strategies
a1 a2 a3 a4
E1 50 400 -50 0
E2 300 0 200 300
E3 -150 100 0 300
E4 50 0 100 0
Indicate the strategy to be selected under the following conditions:
(i) Maximax criterion (ii) Maxmin criterion (iii) Minimax regret criterion (iv) Laplace criterion (v)
Expected Monetary criterion if the state probability are 0.15, 0.45, 0.25, and 0.15.
Ans: Maximax criterion at a2 (400)
Maxmin criterion at a2, a4 (0)
Minimax regret criterion at a2 (300)
Laplace criterion at a4 (150)
EMV = 210

(b) Write a note on decision making by using decision tree.

Year 2003
(a) M/s Hindustan motor ltd has an opportunity to computerize its record department. However
existing personnel have job security under the union agreement. The cost of the different alternative
programmes for change over depends upon attitude of the union and are estimated below:

Attitude of the Probability Training Alternatives Hire new employees

union training to
selective
workers
Antagonist 0.5 940 920 900
Passive 0.3 810 800 820
Enthusiastic 0.2 700 710 860
(i)If probability are not known find minimax and minimin strategy.
(ii)Find expected cost for each act and select the optimal act.
(iii)Find EVPI
(iv)Find opportunity cost table.
Ans: (i) Maximax = 900 (hire new employees) Minimin = 700 (training)
(ii) EC = 842
(iii)EVPI = 12
(iv)Opportunity Cost = 12

(b)Write a note on decision tree analysis.

Year 2002
(a) What is the difference between decision making under uncertainty and risk? Explain the various
criterions of decision making under uncertainty by giving examples in each case.
(b) Explain the following:
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(i) Decision environment.
(ii) Opportunity loss.
(iii) Decision tree analysis.

Year 2001
Payoffs of three acts X, Y, Z and states of nature L, M and N are given below:
States of nature Acts
X Y Z
L -20 -50 200
M 200 -100 -50
N 400 600 300
The probabilities of the states of nature are 0.3, 0.4 and 0.3 respectively. Calculate the expected
monetary value for the three acts and select the optimum act.

*****

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CHAPTER 9 QUEUING MODELS

In our day-to-day life too queuing problems are very common. We have to wait in line for a bus, taxi,
a movie ticket, depositing fees at the fees counter and to get many other type of services.
If in order to reduce the long waiting lines the manager add more check out counters, then, adding
additional check out counters will lead to greater costs in terms of additional personnel, equipment and
space requirements, at the same time it will increase the idle time of the organization.

• Customer (arrival): the arriving unit that requires some service to be performed. The customer may
be human being, machine, parts etc.
• Queue (waiting line): the number of customer waiting to be served. Normally it does not include the
customer being served.
• Service channel: the process of system, which is performing the service to the customer. This may be
single or multi channel. The number of channels will be indicated by ‘k’.
• Arrival rate: the rate at which customer arrive at the service station is called arrival rate. It is
represented by ‘’ (lambda).
• Service rate: the rate at which the service unit can provide service to the customers is called service
rate. It is represented by ‘’ (mu).

Examples of waiting line problems:

(i) Patients waiting at a doctor’s clinic.
(ii) Airplane waiting at airport for clear runways to take off.
(iii) Break down machines waiting for a repairman.

WAITING LINE

Single channel, single phase.

Input customer
E.g.: one-man barbershop.

Multiple channel, single phase.

Input customer

Single channel multiple phase.

Input customer
E.g.: simple assembly line have number of service facilities in series that is one after another,
manufacture of car, scooter.

Multiple channel multiple phase case.

Input customer

Average arrival rate is ‘’

Mean service rate is ‘’.

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It can be proved that this type of system can work only when  <  or  / < 1. If the arrival rate is
greater than service rate i.e. if  >  or  / >1 then the queue will grow without end. But if the ratio 
/ is equal to one, then the queue length will remain constant and if  / <1 the length of queue will go
on diminishing gradually. The ratio  is called utilization ratio or traffic intensity and r is usually
denoted by U or p.

FORMULAE

1. Probability that the service facility is busy or that a customer upon his arrival to the
service station will have to wait (utilization factor) = /

2. Probability that there are no customer in the system or that the service facility is ideal =1-/ (ideal
time)

3. Expected / average number of customers in the system (waiting + being served) =  / - .

4. Expected / average number of customer waiting in a queue or length of waiting line =  / *  / - 

5. Expected / average waiting time in the system. Total time remain in system (including service time)
= 1/-

6. Expected / average waiting time in the queue =  / * 1 / - 

7. Probability of having k or more customers in the system = ( /)k

8. Probability of non empty queue or probability that there is at least one customer in waiting line =
(/)2 at least 2 customer in waiting line = (/)2+1

9. Probability of having more than k customer in system = (/)k+1

10. Probability that there are ‘n’ customers in the system = (1-/) (/)n

11. Expected length of non empty queue or expected length of queue that forms from time to time
= /-

Illustration: 1
At a certain petrol pump, customers arrive according to a Poisson process with an average time of 5
minutes between arrivals. The service time is exponentially distributed with mean 2 minutes. On the
basis of this information find out:
(i) What would be the average queue length?
(ii) What would be the average number of customers in system?
(iii) What would be the expected length of non-empty queue?
(iv) What proportion of customers will have to wait before their services begin?

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Illustration: 2
Data have been accumulated at a banking facility regarding the waiting time for delivery trucks to be
loaded. The data show that the average arrival rate for trucks at the loading dock is 2 per hour. The
average time to load a truck is 20 minutes and system is a Poisson exponential system.
Find:
(i) Expected number of trucks in the system.
(ii) Expected number of trucks waiting to be served.
(iii) The probability that a truck has to wait for service.
(iv) The probability of number of truck in system.

Illustration: 3
A bank counter has a mean service time of 2-min.and customers arrive at the rate of 20 per hour. Find
all the constant of waiting line theory.

Illustration: 4
In a railway reservation counter customer arrive at the rate of 32 persons per hour and the clerk can
handle and provide assistance using a computer terminal to 40 person per hour. Find all the constant of
waiting line.

Illustration: 5
Patients at a medical office arrive at an average rate of 4 per hour. The office can process patients at an
average rate of 5 patients per hour. Calculate the different constant of the waiting line theory.

Illustration: 6
Train arrives on a platform at an average rate of 30 trains per 24 hrs per day. The service time for the
train is 36 min. find:
(i) Expected no. Of train in system
(ii) Expected length of waiting line
(iii) Expected time in system.
(iv) Expected waiting time in queue.
(v) Probability of having 3 or more than 3 train in a system.
(vi) Probability of having more than 3 trains in a system.
(vii) Railway board will install a second platform if waiting time of the train in the queue is 3 hrs. Find
the new arrival.

LAST YEAR QUESTIONS

Year 2003
(a)Write a short note on application of queuing model.
Ans. Queues or waiting lines are very common in our dally life. The problem of long queues can be
seen when we go to office early in the morning by city bus service, when we go to movie, when we go
to purchase essential items from the fair price shop etc. Long queues are generally seen in front of
railway booking offices, post offices, bank counters, service stations, hospitals etc. Less apparent
examples are when one waits for the telephone operator to answer, vehicles waiting for the green
lights on the cross – roads, aeroplanes circling around the airports waiting for the signals to land.

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Obviously a waiting line or a queuing problem arises when either units requiring service or facilities
which provide it stand idle i.e. with operations research one can very effectively analyses such
problems but the relevant decision problems must be of sufficient economic significance to warrant
the expenditure for undertaking the study . Queuing models are those where a facility performs a
service. A queuing problem arises when the current flow rate of customers. If the service facility is
capable of servicing the customer when he arrives, no bottlenecks will occur. But if it takes 20
minutes to service a customer and one customer arrives every fifteen minute a queue will build up
and continues to build up to infinite length if the same arrival and service rate continues. In such a
situation the bottleneck is eliminated only if either arrival rate decreases or service rate increases or
there take place an increase in the number of service facilities .
A queuing system is described by the following three elements:
1. Inputs or arrival process of units or customers.
2. Queue discipline e.g. first come first served.
3. Service mechanism.
A flow of customers from infinite / finite population towards the service facility from a queue
(Waiting line) on account of lack of capability to serve them all at a time. Normally, the queue does
not include the customer being serviced. The customer may be people, machines, ships, letters, parts,
etc. A queuing system can be defined as composed of customers arriving for service ,waiting for
service if it is not immediate , and if having waiting for service leaving the system after being
served

Year 2004
(a) Limitations of Queuing Model.
Ans. (i) Most of queuing models are quite complex and cannot be easily understood due to the element
of uncertainty is almost all situations.
(ii)Queue discipline may also impose limitations because “First come first served” is not true and
there, this analysis becomes more complex.
(iii)Queuing models with variable arrival and or service times are much more complex.

Year 2005
(a) Trains arrive in a railway marshalling yard at an average rate of 30 trains per 24 hours a day. The
waiting time for any train is 36 minutes. If the distribution of arrivals is poisson and that of service
time is exponential, then find:
(i) Expected number of average trains in system.
(ii) Probability of having more than 3 trains in system.

Ans: (i) 3 trains (ii) 3 4

4
Year 2006
(a) Arrivals of customers to a payment counter (only one) in a bank follow poisson distribution with an
average of 10 per hour. The service time follows exponential distribution with an average of 4
minutes.
(i) What is the average number of customers in the queue?
(ii) The bank will open one more counter when the waiting time of a customer is at least 10 minutes.
By how much the flow of arrivals should increase in order to justify the second counter?
Ans: (i) 4/3 (ii) 10.71 per hour.

10.4
 100

A unit of Realwaves (P) Ltd Introduction

Year 2007
(a) Define a waiting line.
Ans. Waiting line models specify the arrangement of the facilities and the number of servers at each
one. The simple queuing system involved is shown.

Served customers

C
CCCCC S Service
Customers C S Facility
S

Served Customers

Waiting line deals with situations where customers arrive, wait for the service, get the service and
leave the system. Waiting line model are analyses for determining the optimal service level, where the
total cost of providing service and waiting is minimized.

Year 2009
(a) What is difference between Queue and system? (Ans 50 words)
(b) Write any four formulae related to single queue single server? (Ans 100 words)

Year 2010
In a railway marshalling yard, goods train arrives at a rate of 25 trains per day. Assuming that the
inter-arrival time follows a poisson’s distribution and the service time distribution is exponential with
an average 36 minutes. Calculate the probability that the queue size exceeds 7.

*****

10.5
 101

A unit of Realwaves (P) Ltd Replacement Theory

CHAPTER 10 REPLACEMENT THEORY

Illustration: 1
A truck owner finds from his past records that maintenance cost per year of a truck whose
purchase price is ` 80000 are given below:
Year: 1 2 3 4 5 6 7 8
Maintenance cost: 10000 13000 17000 22000 29000 38000 48000 60000
Resale price: 40000 20000 12000 6000 5000 4000 4000 4000
Find the optimal replacement period.
Ans: Average cost = 33200, replacement after 5 years.

Illustration: 2
(a) The cost of a machine is ` 10000and the other relevant information is given below:
Period: 1 2 3 4 5 6 7 8
Running cost: 1000 1200 1400 1800 2300 2800 3400 4000
Resale price: 7000 5500 4750 4375 4200 4200 4200 4200
Find the optimal replacement period for the machine.

(b) The owner of (a) has three machines of which are two years old and third is one year old. Now he
is considering purchasing a new type of machine, which cost ` 12000 and has capacity 50% more than
old ones. The necessary information regarding the new machine is given below:
Year: 1 2 3 4 5 6 7 8
Running cost: 1200 1500 1800 2400 3100 4000 5000 6100
Resale price: 8000 6000 5000 4500 4300 4300 4300 4300
Assuming that loss of flexibility due to fewer machines is of no importance, what should his policy
be?
Ans: (a) Average cost = 2700, replacement after 5 years. (b) Average cost = 3540, Replacement after
5 years.

Illustration: 3
A tempo costs ` 20000 and may be sold at the end of any year at the following prices:
Year end: 1 2 3 4 5 6
Resale price: 15000 13000 10000 8000 6000 5000
The corresponding operating costs are:
Year: 1 2 3 4 5 6
Cost `: 5000 6000 7500 8000 8500 9500
It is not only possible to sell the tempo after use but also to buy a second hand tempo of different
make. It may be cheaper to do so then to replace with a new tempo.
The purchase price of the tempo of this make is as follows:
Age of auto 1 2 3 4 5 6
Purchase price (`) 20000 16000 13000 10000 8000 6000
What is the average age to buy and to sell auto to minimize average annual cost?

8.1
 102

A unit of Realwaves (P) Ltd Replacement Theory

Illustration: 4
A plant manager is considering replacement policy for a new machine. He estimates the following cost
(in rupees)
Year Replacement cost at the Salvage value at the Operating cost
beginning of year end of the year
1 10000 6000 2500
2 11000 5000 3000
3 12500 4000 4000
4 14000 2500 5000
5 16000 1000 6500
6 19000 0 8000
Find the optimal replacement policy and corresponding minimum cost.
Ans: replacement policy is 2 year, minimum cost = ` 5750

Illustration: 5
(a) Machine A costs ` 9000. Annual operating costs are ` 200 for the first year, and then increases by
` 2000 every year. Determine the best age at which to replace the machine, if the machine has no
resale value.
(b) Machine B costs ` 10000. Annual operating costs are ` 400 for the first year, and then increases by
` 800 every year. you have now a machine of type A which is one year old. Should you replace it with
B, and if so, when?
(c) Suppose that you are just ready to replace machine A with another machine of the same type, when
you hear that machine B will become available in a year. What should you do?
Ans: (a) machine A replaced after 3 years, (b) machine B replaced after 5 years (c) purchase machine
B.

*****

8.2
 103

.lll
tU I Roll No. : Total Printed Pages:f
vt
-l
- 2M5108
E I M-208A
M. B. A. (Sem. il) (Main & Back) Examinarion, Juty - zoi4
Al Operations Research
el
Time:3 HoursJ
[Total Marks:70
[Min. Passing Marks:28

(1) Tlte qu,estion paper is diuided in two sections.

(2) Tlrcre are sections A and B. Section A contains 6 questions out
af u;hich the candidate is required to attempt any 4 questions.
Section B contain sh.art case study / application base i question
which is compulsory.
(3) All questions are carrying equ,al marks.
Use of following supporting material is permitted during examination.
(Mentioned i1 form No. 205)

1. Normal Probability Table _ 2. NIL

n)Qe UD,tc-AR ur...t
sECrIoN - A PU rrl e€-f M }RG
A companv has two srades of in spectors, , Lf *37fJr:3f
assigned" for quality
a control inspection. It is required that at least
1800 pieces be inspected per 8 hour - day. Grade 1 inspectors can
check pieces at the rate of 25 per hour, with an accuracy of gg%.
Grade 2 inspectors check at the rate of lb pieces per hour with
an accuracy of 95o/o.
The wage rate of Grade 1 Inspector is Rs. 4.00 per hour, while
that of a grade 2 Inspector is Rs. 3.00 per hour. Each time an
error is made by an inspector. the cost to the company is Rs. 2.00.
The company has available for the Inspection Job eight grad.e 1
Inspectors and ten grade 2 Inspectors. The company wants to
determine the optimal assignment of Inspectors which will minimize
the total cost of the Inspection. Formulate the problem and solve
using any appropriate method.
t4
2M5108r lffiill]lllliiltllillllflitl]tlJilitilt 1 IContd...
 104

(a) What the dual of

Maximize . Z = xr+ 4xr+3x,
Subject to : 2x, *3xr- 5x, 3 2
3xr-xr+611 21
xL+ x2* xa = 4

,t?0, xr30,x unrestricted in sign-

(b) What are shadow prices and why they are important ? How
they are determined ? What is their relationship to the dual
problem ? ff\Oe_€ S,DVCATT CInJ
purxre€T HORe 7+7=L4

?g'a;)tstc3/
3 A Solicitor firm employs typists on hourly piece basis for their daily

work. There are five tlpists for service and their charges and
speeds are differenr. According to an earlier understanding only

one Job is given to one typist and the typist is paid for full hours
even if he works for a fraction of an hour. Find the least cost
allocation for the following data :

Typist Rate per No. of pages Job .lIo. of pages

hour (Rs.) Typed/hnur
A 5 1.)
IL P 199

B 6 L4 a r /c
C 3 OE R 145

D 4 10 S 298

B 4 11 T L78

14

2M5108r il[filtjltrtEltllilit[i]t[liElttlJrflffiEt 2 IContd....

 105

..v'4t, Determine the optimal solution for the transportation problem

with the following unit cost - supply , demand structure :
Plant Warehouse Supply
t)
w1 w2 w3 A ,i
\LI\7
P1 8 a
\rJ .\
6 100
P2 15 10 L2 L2A '$)
P3 3 I 10 80
P4 3 I 10 80
Demand 100 100 r00- '.'. ':t: f =.

Give alternative optimum transportation schedules, if any.

14
(a) Find the ranges of values of p and g which will render the
entry (2, 2) a saddle point for the game shown below :
e

Player A 2 4 b
M OR-E € DU C A.1\ ON
10 7 q
pu ru€'eT Ho Rr
?
4 p 6 t I {q1.1 S? s3 6
r\ .e) Explain the terms :
(, Two person - zero sum game
(ii) Pure stratery in game theory.
7+7=14
6 A company is currently working with a process which after paying
for materials, labour etc brings a profit of Rs. 12,000. The fouowing
alternatives are made available to the company :
(, If can conduct research Rl which is expected to cost
Rs. 10,000 having g0% chance of success. If it proves a srlccess
the company gets a gross income of Rs. 2b,000.
(1i) If can conduct Research R2 which is expected to cost
Rs- 8,000 having a probability of 60% success, the gross
income will be Rs. 2b,000.
(lii) If can pay Rs. G,000 as royalty for a new process which will
bring a gross income of Rs. 20,000.
(iv) If can continue the current process. Use d.ecision free analysi.s
(decision making under risk) to deternrine the optimal straiegy
for the company.
74
2M5108r ililill]ffi|lil]lllnflililfil]tillllt 3 lContd...
 106

SECTION -B
,4
.

\*-' (a) figure.

,U7' For the project represented by the network diagram of
1, find the earliest and latest times to each node,
given the following data :

Task: ABCDEFGHIJK
t
Least time: 45824685356
J-
j

.4-p Greatest tirne: 810127r0i5t69711i3

.ti,)
"t. Most I kely time: s 7 11 3 7 9 12 6 5 8 9

Fig. 1

&) Determine the variance of each task of above problem. Also

determine the variance of the critical path of the network.
What is the probabfity of completing the project in 36 days,
if the given task times are in days ?
f\n OR-C tPU C Ano sJ 7+7=14

Pu/v eeT 'rrCK9

qgzq? -r?s36

2rrr5108i 6,€I t#
lltE{irffi[$itfiiliigillgil[[igligitiE[i
 107

Total No of Pages: p
€
o
t{ M. B. A. II Sem. (Main / Back) Bxam., July-August 2015
rn M-208 Operation Research
N -=
=
'J

Time: 3 Hours Maximum Marks: 70

Min Passing Marks: 2E
Instructions to C andidate s :
(i) The question paper is divided in two sections.
(ii) There are sections A & B. Section A contains 6 questions out of
which the candidate is required to attempt any 4 questions.
Section B contains short case stud)* / application based question
which is compulsory. l

+.+-- (iii) Allqaestionsmr-ry

1. NIL 2. NIL

SECTION.A
I
,/
Qz( @) Define Operation Research and discuss its scope. t8l
-1 (b) A firm manufactures 3 products A,' B and C. The profits are '3: '2 and'4
respectively.The firm has 2 machines and below is the required processing time
in minutes for each pachine on ehcfi machine.
Produgt
ABCL
.a
MachineG 41 3 5 r
MachineH 2 2 4

Machine G and [I have 2000 and 2500 machine - minutes respectively. The firm must
manufacture 100 A's, 200 B's and 50 C's but not more than 150 A's. Setup an L.P.
problem to maximize profit. t6l

[2Ms108] Page 1'of3 12s2ol

 108

Q.2 (a) Write the dual of the primal problem:

Maxz^= 5xil2xz*4x3,
subject to the constraints -
' X1 *2x2* x3 (5,
X1 - x2*3x31),
Xr ) 0, xz ) 0 and x3 is unrestricted in sign. t71

O) What are the usefuI aspects of duality in L.P.P. m

Q.3 (Q/Obtain an initial basic feasible solution to the following transportation problem
"/ using Vogel's Approximation Method: t8]
Stores
tr Availability
A 7 J 5 5 34
Warehouses B 5 5 7 6 l5
,C t2
8 6 6 5
D 6 1 6 4 19
Demand t7 80

(b).r'What is an assignment problem? t61

{
Q.4 (a) A businessman has three alternatives open to him each of which can be followed
by any of the four pdssible events... The in ')
, ,-, - -- ::
eUent combination are given below: t8l

Payoffs conditipnal on events

Alternative
A B C D
x 8 0 -10 5
Y -4 t2 18 -2
Z\' t4 6 0 I
Determine which alternative the businessman should choose, if he adopts the
maxmin criterion.

(b) What do you understand by Decision Tree analysis? t6l

[2Ms10B] Page 2 of3 12s2ol

 109

) Determine the range of value of p and q that will make the payoff element zz2, d
saddle point for the game whose payoffmatrix (ar) is given below. t8l
Player B
2 4 7
Player A 10 7 q
4 P 8

'r +,#-,o+*.4**=* - -- \--.-v_*- -,*. ,-.+-+r

(b) What are the major limitations of the Game Theory? t6l

Q.6 (a) A firm is considering replacement of machine, whose cost price is '12,200 and
the scrape value, '200. The running (maintenance and operating) costs in rupees
are found from experience to be as follows: t7l

a
Year I 2 J 4 5 6 7 8

Running cost 2W 500 800 naa r800 2500 3200 4000

When should the machine be replaced?

"(b) Explain the areas*o+-apflieA-of Yer*c.et rlardrmlrtiqrm tl r^ ^' ' :'
----r**!
limitations. t7l

Q.7 .. A project consists of a series of tasks labeled A, B, C,... .,.. . ..H, I with the following
relationships (W < X, Y means X and Y cannot start until t{4 rolonlety:I+J,_a-y,
means W cannot start until both X and Y are completeO). With this notation coristruct
the network diagram having the following constraints: lt41
.1 r(-
A<'DE: -----.
B,D.<F:"C<G:
.
B,G<H: F,G<I.
i
.Etu* tisle oilcomliletion o-Ithe pir*@in dayslef--.:.*-
completion,#*e@
--- H I
Task A B C. D E F G

Time 23 8 20 t6 24 18 t9 4 10

[2Ms1.08] Page 3 of3 l2s2ol

 110

t
rn rn sxf{'U" q,",esl tr
Roll No.

z rr{s 1 Jfl
M.B.A. II Sem. (Nlain tBack) Exam., June-July 2016
M-209 A Operations Research

Time: 3 Hours Maximum Marks: 70

Min. Passing Marks: 28
Instructions to Candidates; :

(i) The question paper is divided in e? sections.

(ii) There are sections A {8. Section A contains 6 questions out of .

whffit the candidate is required to attempt any 4 questions.

section B contains sh.ort,case study / application based question
which is compulsory.
(ii[ - Atl gytestions carry eqaal marks.

SECTION -A
Q. 1 (a) Define operation Research and discuss its advantages and.disadvantages. l7l
\-.. &) Write an essay on scope and methodologies of operations research. t7l
Q. 2 (a) How do the graphic and simplex method of solving linearprogramming problem
differ? In what ways_ they are same. 171
(b) What are shadow prices and why they are important? How they are determined?
What is the relationship to the dual problem? t71
Q.3 A company has four factories Fr, Fz, F3 and Fa manufacturing tlp same ilroduct.
Production and raw material costs differ from factory to iactory and are given in the -,
following table in the first two rows. The fransportation gosts from the factories to the
sales depots 51, 52, 53 are also given. The last t*o the table give the salss--
"olurrlffi
price and the total requirement at each depot. The production capacity of each factory
is given in the last row.

lzus 10Bl Page 1 of3 127*ol

 111

Sales Price
F1 F2 Fq Fa Requirement
Per Unit

Production CostAJnit 15 18 t4 13
' r: -

Raw Material Cost/Unit ! 10 9 12 9

{

s 1
3 9 5 4 34 80

Transportation Cost/Unit Sz 1 7 4 5 32 t20

S: 5 8 6 3t 1s0

Supply 10 150 50 100

Determine the most profitable production and distributiori schedule and the
corresponding profit. The deficit productioh should be taken to yield zero profit. t14l
Q.4 Two breakfast food manufacturing-firms A and B are competing for an increased
market share. To improve its market share, U ._
following sffategies: \-- -

Ar, 81 = ' Give coupons -\-.

Az, B2 =
d
Decrease piece

Ar, 83 Maintain present strategy

Ad, Ba = Incr3ase advg{ising

?

The pay-off matrix, shown in the following tablefiscribes the increase in market
share for firm A and decrease in market share for firm B. u47;,/ :
*t'

FIRMA A.1

A2

A3
A.
tL4

\ \

Determine the opti*al strategies for each firm and value of the same.
1,..
\
.12M51081 !
Page 2 of3 l274ol
 112

Q. 5 (a) "PERT provides the framework with which a project can be described, scheduled
and controlle4." Diqcuss. 17l
(U) What is meant by crashing of projects time? Explain the steps involved in
planning. / t7l
--a--
- Q. 6 Define simulation. Discuss its process, advantages and disadvantages. tt4l
SECTION -B
Case Studv

Q. 7 The data for a PERT network is displayed below. Determine the critical path, ET, tfl
and expected duration (Te) for completing the entire project. t14I
\* - '-.
,_a

Activity t6 ty tp

B r-2 2 4 6

6
7 1-3

1-+
6 6

24
_6 -12
>1 2-3 2 5 8
i\s
*2-5 11 t4 23

3-4 15 24 45
-l

3-6 ,3 6 9

4-6 9 15 27

5-6 4 10 t6

given : Z 0.25 , 0.50 0.7 5 1.00 1.50 1.67

0.933 0.953
,ory? 0.692 0.778 0.841

[zMs10B] Page 3 of3 l274ol

113
114
115
116
 VIDEO AVAILABLE FOR
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
117

Total No of pages,
@
2Nt5 108
M'B'A' rr-sem (Main t Back) Exam.,
May - 201g
M-2ogA operation Research
a'-

3 Hours
Maximum Marks: 70
Instructions to Candidates :
Min. Passing Marks: 2g
(i) The question paper is divided in two sections.
(ii) There are sections A & B. section A contains
candidate is required to attempt
6 questions out of which the
case study / application based
,iri
i"rti"iorr. section B contains short
qurriion inii
i, compursory.
(iii) All questions carry equal marlcs.
l: NIL
2, NIL

A certain company needs five repair jobs which

have to be assigned to five machines.
estimated time in hours rhar
each machine requires to complete
;#
MORE EDUCATION 9829959536
hr'' ffien in the following
rable:
the repair jobs is

tt4)
Job
J1 J2 J3 T-
Ja rr5
Machine

q^ Ml 7 5. 9 8 l1
I\[.2 t2
5r7 9 7. 11 10
5t M3 8 5 4r 6 9
5s Ma 7 -3 r' 6 9 5
a, M5 4 6 7 51 11

Assuming that each machine can

be assigned to onry one job, determine
optimal
assignment.
[ZMrs 10B]
Page 1 of 4
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 VIDEO AVAILABLE FOR
\
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
118

pindthe dual of the followirtg p16Ut"* and then obtain its solutiori: t14l
d
v
Minimize Z= 20xr+
i.rp
Subject to x1 * x2 ) 10
a

3xr * 2x2>24
. - .5-..r.-
.

Xl, X220

q6 Xirm manufactures two products X and Y by using three types of raw materials A' B
//
and C..The details have been given in the table given
as follows: t14l

Raw Material Product No. of units available

.)O \o
.-*=._
x
.-*E+-,
-i a
*-':";
L- s": -
a-3.

A 5 units 2 units 170

MORE
: EDUCATION
4 units 5 units
9829959536
170

C 3 units 8 units 180

\91
;il"t+-'

If per unit profits from products X and Y are { 5 and { 3 respectively. Find the optimal

product mix ,
| :.i.*
'

methods' t7l
Q.4 (a) Differentiate between Transportation and Assignment
1,"..
problem. 171
(b) Consider the following unbalanced transportation

Page 2 of 4 [31ool
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 VIDEO AVAILABLE FOR
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
119

To 1 2 3 Supply

Front
A 5 1 7 10

6 4 6 80

C =r*.._3,**. 2 5 15
e?a.

Demand 75 20 50 105

r45 \

Since there is not enough suPPlY, some of the demands of the destinati ons may
.is
destinations 1, 2 and 3
rt
not be satisfied. The PenaltY for unsatisfied demand at
t

<5,3 and 2 respectivelY. Find the optimum solution.

'v^E%v-

(a) Solve the following game.\iq v'

0rt'0 U1
r(f\
'90,
(z
tt
4 11)
\
[z 4 2)
"''":.- *ftI&aq* l*.E=
{_fl
V{ Explain the concept of dominance in"ganT theory'

MORE EDUCATION 9829959536

What is the difference between decision making under
uncertainty and risk? Ul
Q.6 (a)

(b) A boy purchases a news magazine for { 3 and sells it for ( 5 per magazine' He

Past rocords of sales are as

can return the unsold stock for < 1.00 per magazine'

t7)
follows:

Sale of Ma gazlfie 20, 21, 22, 23, 24' 25' 26:

r*{r#Fr

0.03 0.05 0. 17 0.23 0.30 S.+8 0.04

?-'-a.\
ktreF#r-'.

Find the optimal ordering quantity'

Page 3 of 4 [31ool
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WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
120

Case Study - n4l

A project consists of the following activities
- -4f
rt a4*
j J t=n:"

/i'Lt{-'d
0
Activity t-2 1-3 t-4 2-5 2-6 3-6 4-7 5-7 6-7

to "'3.'' 2 6 2 5 3
a,

J 1 2

tp 15 T4 30 8 T7 15 27' 7 8

tm 6 5 12 5 11 6 9 4 5
,D
.{
t"-
gldraw the network.
*
" A- -+**-'-
QX Determine the expected,rT: *g ^-:- -
varianceJerceilffillvrty. +{q-:$FSE*idl::+
. - -__-r'i,++-..
\\.

g Findthe criti calpath.

wnatis the probabiliry thatproject wilr be compreted

1*/
MORE EDUCATION 9829959536
by 27 days.

-i+i'
'-- ---r-F

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 121

A unit of Realwaves (P) Ltd Z Test

Z test (Normal Probability Distribution)
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.1 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.2 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.3 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517
0.4 0.1554 0.1591 0.1628 0.1664 0.1700 0.1736 0.1772 0.1808 0.1844 0.1879

0.5 0.1915 0.1950 0.1985 0.2019 0.2054 0.2088 0.2123 0.2157 0.2190 0.2224
0.6 0.2257 0.2291 0.2324 0.2357 0.2389 0.2422 0.2454 0.2486 0.2517 0.2549
0.7 0.2580 0.2611 0.2642 0.2673 0.2703 0.2734 0.2764 0.2794 0.2823 0.2852
0.8 0.2881 0.2910 0.2939 0.2967 0.2995 0.3023 0.3051 0.3078 0.3106 0.3133
0.9 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3340 0.3365 0.3389

1.0 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.1 0.3643 0.3665 0.3686 0.3780 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.2 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015
1.3 0.4032 0.4049 0.4066 0.4082 0.4099 0.4115 0.4131 0.4147 0.4162 0.4177
1.4 0.4192 0.4207 0.4222 0.4236 0.4251 0.4265 0.4279 0.4292 0.4306 0.4319

1.5 0.4332 0.4345 0.4357 0.4370 0.4382 0.4394 0.4406 0.4418 0.4429 0.4441
1.6 0.4452 0.4463 0.4474 0.4484 0.4495 0.4505 0.4515 0.4525 0.4535 0.4545
1.7 0.4554 0.4564 0.4573 0.4582 0.4591 0.4599 0.4608 0.4616 0.4625 0.4633
1.8 0.4641 0.4649 0.4656 0.4664 0.4671 0.4678 0.4686 0.4693 0.4699 0.4706
1.9 0.4713 0.4719 0.4726 0.4732 0.4738 0.4744 0.4750 0.4756 0.4761 0.4767

2.0 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817
2.1 0.4821 0.4826 0.4830 0.4884 0.4838 0.4842 0.4846 0.4850 0.4854 0.4857
2.2 0.4861 0.4864 0.4868 0.4871 0.4875 0.4878 0.4881 0.4884 0.4887 0.4890
2.3 0.4893 0.4896 0.4898 0.4901 0.4904 0.4906 0.4909 0.4911 0.4913 0.4916
2.4 0.4918 0.4920 0.4922 0.4925 0.4927 0.4929 0.4931 0.4932 0.4934 0.4936

2.5 0.4938 0.4940 0.4941 0.4943 0.4945 0.4946 0.4948 0.4949 0.4951 0.4952
2.6 0.4953 0.4955 0.4956 0.4957 0.4959 0.4960 0.4961 0.4962 0.4963 0.4964
2.7 0.4965 0.4966 0.4967 0.4968 0.4969 0.4970 0.4971 0.4972 0.4973 0.4974
2.8 0.4974 0.4975 0.4976 0.4977 0.4977 0.4978 0.4979 0.4979 0.4980 0.4981
2.9 0.4981 0.4982 0.4982 0.4983 0.4984 0.4984 0.4985 0.4985 0.4986 0.4986

3.0 0.4987 0.4987 0.4987 0.4988 0.4988 0.498 0.4989 0.4989 0.4990 0.4990
 122

Rou No. I .S IV RLax x 6 c{

€ TotalNoofpages:
o
F{ 2NI51OB
I
rn M.B.A. II - Sem. (Main &
Back) Exam., May _ 20lg
E M-209A Operations Research
N

Maximum Marks: 70
Instructions to Candidates Min. Passing Marks: 2g
:
(i) The question paper is
divided in two sections.
(ii) There are sections A
& B' section A contains 6 questions
oLtt of which the
candidate is required
tu aftempt any 4 questions.
section B contains short
case study / apprication based question
which is compursory.
(iii) All questions carry equal marks.
I. NIL
2. NIL
SECTION - A
Q' l (a) Discuss the role of
Quantitative techniques in business
decision making.
(b) sorve the fo'owing Linear programming t7l
problem by
Graphicar Method.
t7l
MaxZ=500xr*800x,
Subject to

xr<80
x2<60
5x1*6xrS600
xr*Zx2 < L60
and x1, xz )0
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Page 1 of 4
124401
 123

- tl0]
a2 (a) Solve the following Game theory Problem
B

Br Bz Br B,l

Arf3 2 4 0
Az 424
13
A A, l4 240
A+ L0 4 0 8
bY giving some suitable
I Define Saddle Point in the same theorY Problem

t4l
examPle.

problem by assignment method'

t7l

v? Solve the following maximization

ABCD E

1 30 37 40 28 ool
2 40 24 27 2l ,ul
a
J 40 32 33 30 ,tl
4 25 38 40 36
'ul
2s 62 41 34 39)
5

t7l
by Vogel Approximation Method'
(b) Solve the Transportation Problem

Destination Centre
PAR T Supply

A 4 622 l4 6
Production
Centre B 2012 2 1

C 10 16 30 18 10

Page? of 4
1244ol
[2Ms108]
 124

Q.4 Given the following Information

Activity Predecessor Duration
A 9

B 4
C I
D B,C 8

EA I

FC 5

GE 10

HE 8

I D,F,H 6

JE 9

K I,J 10

LG 2

Find the critical path and different types of Floats'

tl4l
/4
the same at 5' He itrcurs a Loss tlf'J
a.5 @), A retailer buys an item at 2 per case and sells
4
quantity he must-stock' Previ'iits
fbr every unsold item. The problem is how much

experience shown that demand varies from 13

t0 15 cases a day using' l7l

(i) Maxi-max criterion

(ii) Maxi-mincriterion
(iii) Hurwitz criterion
(iv) LaPlace criterion

(v) Mini-max Regret criterion (take cx = '7)

(by A newspaper boy has the following probabilities of selling

a magazine' til
/.

No. of copies sold l0 11 t2 13 14

Probability .10 .15 20 .25 .30

return the unsold magazines

Cost of a copy is 3 and sales price is 5' He cannot
f.
'')

Determine oPtimal act and EVPI' ,.<

V

Page 3 of4 1244ol

[2Ms108]
 125

/
a.y A company manufactures around 200 mopeds depending upon the availability of Raw
material and other factors the daily production varies from 196 mopeds ta 204 mopeds.
whose probability distribution is as given below. f,t4l

Prod'n per day t96 r97, 198 r99 200 201 202 203 204
Probability .05 .09 .12 .t4 .20 .15 .1 I .08 .06

The finished mopeds are transported in a specially designed 3 story lorry that can
accommod ate 200 mopeds.

Required: Using the following 15 random number.

82,89,78,24,53,61,18,45,04,23,50,77,27,54,10simulatetheprocesstofindout:
(a) What will be the average number of moped waiting in the factory?
(b) What will be the average number of empty space on the Lony?

SECTION. B
Case Study

Q.7 A firm makes two types of furniture i.e. chairs and tables. The contribution for each
product as calculated by the accounting department is 20 per chair and 30 per table. Both

products are processed on 3 machines Mr, Mz, Mr.The time required in Hours by each

product and total time available in Hours per week on each machine is as
fbllows. t14l

Machine Chair Table Available time

a
Mr J J 36
Mz 5 2 50
M: 2 6 60

How should the manufacture schedule his production in order to maximize contribution?

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