Depart ment of Mathemat ics Babu Banarasi Das National Institute of Technology & Management, Lucknow

NMBA 025 Operations Research M.B.A (Second Semester) 2013-14 Assignment I

1. Explain the brief application of Operations Research in managerial decision making. 2. What are the advantages and disadvantages of operations research models? Why is it necessary to test models and how would you go about testing a model? 3. Discuss the scope of operations research in management. 4. What is decision-making? Discuss the different environments in which decisions are made? 5. Write short notes on i. Maximin criterion ii. Minimax criterion iii. Hurwicz criterion 6. A company is faced with the problem of determining the optimum number of a certain magazine to order. The magazine costs Rs. 5 and sells at Rs. 10 per copy. If the company orders more copies than it can sell, the unsold copies can be returned under the prior wholesale contract for a refund under the following formula: upto first 500 copies, refund is Rs. 3 for each unsold copy; between 501 to 1,000 copies, refund is Rs. 2 for each copy and for over 1,000 copies, it is Rs. 1 per copy. The sale record of past 100 weeks is given:

No. of copies 4,000 sold/week No. of weeks 10 (i) (ii)

5,000 25

6,000 35

7,000 20

8,000 10

What is the optimum decision? Compute the expected maximum profit?

7. What do you understand by decision tree analysis? What are advantages and limitations of the decision tree approach? 8. A company dealing with newly invented telephonic device is faced with the problem of selecting the following strategies: (i) manufacture the device itself (ii) to be paid on a royalty basis by another manufacturer (iii) sell the rights for its invention for a lump sum. The profit in thousands of rupees that can be expected in each case and the probabilities associated with the sales volume are shown in the following table:

Event High demand Medium demand Low demands

Probability Manufacture itself 0.2 100 0.3 30 0.5 -10

Royalties Sell the rights 40 20 25 20 15 20

a) Represent the companys problem in the form of a decision tree. b) Extend the diagram further for the following additional information: i. If the company manufactures itself and sales are medium or high, it has the opportunity of developing a new version of its telephone. ii. From past experience, it estimates that there is 60% chance of successful development. iii. If the cost of development is Rs. 20 and the returns (after deducting the development cost) are Rs. 35 and Rs. 10 for high and medium demand respectively.