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# Management Science

Sample Paper
This is a sample paper and students should;
by no means consider this as a representative sample.
not confine themselves only to this paper.
also expect reproduction of questions given in the text book or examples
discussed in class.

Linear Programming
1. Consider the following LP Model:
Max.: P = 12X1 + 15X2

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i.
ii.
iii.
iv.
v.

## 3X1 + 4X2 <= 20 ---------------- 1

4X1 - 3X2 <= 10 ---------------- 2
X1 <= 4
---------------- 3
X2 >= 3
---------------- 4
3X2 >= - 2X1
---------------- 5
Sketch the constraints
Identify feasible region
Determine the coordinates of corner points
Determine optimal values of objective function and X1 and X2
Determine slack/surplus.

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s.t:

2. Solve the following LP model i.e. find the optimal values of the objective function and
decision variables.
---------------- 1
---------------- 2
---------------- 3
---------------- 4
---------------- 5

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## Max.: P = 2X1 + 5X2 3X3

s.t:
X3 >= 5
2X1 + 3X2 + 4X3 >= 12
2X1 15 <= - 3X2
25 + X2 >= 4X3

## 3. Following constraint have been extracted from a linear program:

i. Coefficient of y
iii. Left hand side

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Interpret:

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## 70x + 1,500y 105,000

where: x = Number of buses
y = Number of trains
RHS = number of passengers to be traveled per day
ii. 70x
iv. Inequality sign ()

## 4. Consider the following constraints of a linear model:

3X1 + 2X2 + 2X3 <= 120
X1 + 4X2 + X3 <= 50
2X1 + X2 + 3X3 >= 70
5X1 + 2X2 + 15X3 >= 200

It is further given that the objective of the model is maximization and optimal values of X2
and X3 are zero. Determine optimal value of X1.

5. Thriftem Bank is in process of devising a loan policy that involves a maximum of \$12 million.
The following table provides the pertinent data about available types of loans:
Type of Loan Interest rate Bad-debt ratio
Personal
0.140
0.10
Car
0.130
0.07
Home
0.120
0.03
Farm
0.125
0.05
Commercial
0.100
0.02
Bad-debts are unrecoverable and produce no interest.

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Competition with other financial institutions requires that the bank allocate at least 40% of
the funds to farm and commercial loans. To assist the housing industry in the region, home
loans must be equal to at least 50% of the personal, car and home loans. The bank also has
a stated policy of not allowing the overall ratio of bad debts on all loans to exceed 4%.
[Source: Operations Research, 8th edition by Hamdy Taha.]

Model:

Variables:

## X1= Personal loan (in millions of dollar)

X2 = Car loan
X3 = Home loan
X4 = Farm loan
X5 = Commercial loan

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## = {0.14(0.90)X1 + 0.13(0.93)X2 + 0.12(0.97)X3 + 0.125(0.95)X4 +

0.1(0.98)X5] [0.10X1 + 0.07X2 + 0.03X3 + 0.05X4 + 0.02X5}
= 0.02600X1 + 0.05090X2 + 0.08640X3 + 0.06875X4 + 0.07800X5

Constraints:

X1 + X2 + X3 + X4 + X5 12
X4 + X5 0.4(X1 + X2 + X3 + X4 + X5)

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X3 0.5(X1 + X2 + X3 + X4 + X5)
0.1X1 + 0.07X2 + 0.03X3 + 0.05X4 + 0.02X5 0.04(X1+X2+X3+X4+X5)

6. A federal agency has a budget of \$1 billion in the form of grants for innovative research in
the area of energy alternatives. A management review team consisting of scientists and
economists has made a preliminary review of 200 applications, narrowing the field to 6
finalists. Each of the six finalists projects have been evaluated and scored in relation to
potential benefits expected over the next ten years. These estimated benefits are shown in
the table below. They represent the net benefits per dollar invested in each alternative.

## Net Benefit per

dollar invested
4.4
3.8
4.1
3.5
5.1
3.2

Project
Solar-1
Solar-2
Synthetic fuels
Coal
Nuclear
Geothermal

Requested level of
funding (\$ in million)
220
180
250
150
400
120

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Above table also shows the requested level of funding. These figures represent the
maximum amount, which can be awarded to any project. The agency can award any amount
up to the indicated maximum for a given project. Similarly, the president has mandated that
the nuclear project should be funded to al least 50% of the requested amount. The agencys
administrator has a strong interest in solar projects and has requested that the combined
amount awarded to the two projects should be at least \$300 million.
Apart from above, following constraints should also be considered.
i.

## Each project should receive at least 20% of the requested amount.

ii. The amount awarded for the synthetic fuel project should be at least as much as that
awarded for the coal project.
iii. Combined funding for the geothermal project and synthetic project should be at least
\$30 million.

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iv. Funding for the nuclear project should be at least 40% greater then the funding for the
geothermal project.
v. Funding for the Solar-2 should be no more than 80% of the funding for Solar-1.

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## Formulate a LP model to determine the amount of money to be awarded to each

project in order to maximize total benefits.
[Source: Applied Mathematics for Business, Economics and Social Sciences by Frank S. Budnick]

Model

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## Variables: Xi = Amount awarded to ith project (in millions of dollar)

Objective fn : Max = 4.4X1 + 3.8X2 + 4.1X3 + 3.5X4 + 5.1X5 + 3.2X6

Constrains: X1 + X2 + X6 1000
X1 220 X6 120 [Six Constraints]
X5 0.5400
X1 + X2 300
X1 0.2(220) X6 0.2(120) [Six Constraints]
X3 X4
X3 + X6 30
X5 1.4X6
X2 0.8X1
[Nineteen Constraints]
3

7. The real estate company owns 800 acres of undeveloped land and the president of the
company is studying the possibility of developing a housing project on it. Apart from homes,
the project will also include the area for roads, utilities and recreation. He estimates that
15% of the acreage will be consumed in the roads and utilities.
Following Government Regulations are applicable in this region.
i.

Only single, double and triple-family homes can be constructed, with the single family
homes accounting for at least 50% of the total.

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ii. The lot size of 2, 3 and 4 acres are required for single, double and triple-family homes,
respectively.

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iii. Recreation area of one acre each must be to be established at the rate of one area per
200 families.

The availability of water for the project is limited to 200,000 gallon per day. The per unit
water consumption and net returns from the different housing units are as under:

## Water Consumption (gallon/day)

Net Return (Rupees)

Single
400
10,000

Double
Triple Recreation
600
840
450
15,000 20,000
-

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## Formulate a LP model to determine optimal number of single, double and triple-family

homes that maximize the return of the company.
[Source: Operations Research, 8th edition by Hamdy Taha.]

Model

## X1 = Number of single family homes

X2 = Number of double family homes
X3 = Number of triple family homes
X4 = Number of recreational area

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Variables:

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## Objective fn : Max = 10,000X1 + 15,000X2 + 20,000X3

Constrains: X1 0.5(X1 + X2 + X3)
2X1 + 3X2 + 4X3 + X4 680
[800*.85]
X4 (X1 + 2X2 + 3X3)/200
400X1 + 600X2 + 840X3 + 450X4 200,000

## Linear Programming Sensitivity Analysis

Consider the following output generated through POM-QM
Value

Reduced Cost
0
2.948
1.149
0
16.667
0
3.736
0
Dual Value Slack/Surplus
0.58
0
0.557
0
0
26.54
0.463
0

Original Val
7
9
15
13
Original Val
125
175
82
300

Lower Bound
- infinity
7.02
11.517
3.529
Lower Bound
59.029
170.918
55.46
223.529

Upper Bound
9.948
11.927
18.345
17.04
Upper Bound
151
212.242
Infinity
307.273

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Variable
X1
X2
X3
X4
Constraint
Constraint 1
Constraint 2
Constraint 3
Constraint 4

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8.

ii.

## Identify binding and non-binding constraints.

iii.

Which resources and by how much should be increased in order to improve the
optimal solution.

iv.

Which resources and by how much should be decreased without causing a change in
optimal solution.

v.

## Determine unit worth of each resource.

vi.

Determine effects on profit due to increase/decrease of the resources as per part iii and
iv above.

vii.

Determine the range of coefficients of objective function within which optimal solution
does not change.

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i.

SS

## Max: P = 11X1 + 13X2 + 15X3

s.t.:
25X1 + 30X2 + 50X3 <= 500
5X1 + 3X2 + 4X3 <= 50
10X1 + 15X2 + 7X3 <= 150
2X1 + 2X2 + 2X3 <= 125

i.

Which resources and by how much should be increased in order to improve the
optimal solution.

ii.

Which resources and by how much should be decreased without causing a change
in optimal solution.

iii.

5

iv.

and ii above).

v.

vi.

vii.

## Determine the range of coefficients of objective function within which optimal

solution does not change.

viii. Company may like to increase one resource at a time; develop a priority list for
decision making.

Variable
X1
X2
X3
Constraint
Constraint 1
Constraint 2
Constraint 3
Constraint 4

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## {For your assistance one of the results is given below}

Value
Reduced Cost Original Val Lower Bound Upper Bound
2.105
0
11
9.907
18.974
6.14
0
13
9.7
14.815
5.263
0
15
8.089
21.6
Dual Value Slack/Surplus
Original Val Lower Bound Upper Bound
0.218
0
500
333.333
576.923
0.414
0
50
44.444
76.923
0.347
0
150
91.667
250
0
97.982
125
27.018 Infinity

Solution

R1
R2
R3

76.923
26.923
100.000

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i.

Quantity

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Resources

Resources
R4

Quantity
97.982

iii.

Resource - 1
0.218

Resource - 2
0.414

Resource - 3
0.347

Resource 4
0

iv.

Resource - 1
39.661

Resource - 2
75.319

Resource - 3
63.130

Resource 4
0.000

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ii.

v.

-1.368

vii.

X1
9.907 < Cx1 < 18.974

viii.

First
R2

vi.

-3.421

Second
R3

X3
8.089 < Cx3 < 21.6

X2
9.7 < Cx2 < 14.815
Third
R1

Fourth
-

Markov Analysis
1. A business school is running a four-year degree program. Students enrolled in
the program are classified as freshman (first year), sophomore (second year),
junior (third year) and senior (forth year).
An analysis of the historical data reveals the following results:

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## Dropouts rate: 20% from freshman would be dropouts

15% from sophomore would be dropouts
10% from junior would be dropouts and
5 % from senior would be dropouts

Sophomore:

Junior:

## 5% of juniors will remain in this category.

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Freshman:

Currently, the school has 600 freshmen, 520 sophomore, 460 juniors and
420 seniors.
Construct transition matrix.

Sophomore
0.65
0.10
0.00
0.00
0.00
0.00

Junior
0.00
0.75
0.05
0.00
0.00
0.00

Senior
0.00
0.00
0.85
0.05
0.00
0.00

Dropouts
0.20
0.15
0.10
0.05
1.00
0.00

0.00
0.00
0.00
0.90
0.00
1.00

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Freshman
Sophomore
Junior
Senior
Dropouts