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CHAPTER 4 ALGEBRA 63
Introduction 1
Intersection of Sets 3
Venn diagram 4
Principle of counting 6
Application of Venn 8
Practice Problem 11
Introduction 15
Number line 15
Integers 16
Gradients 21
Practice Problem 23
Equation of Straight 25
Practice Problem 30
Sketching a Graph 31
Points of intersection 33
Practice Problem 36
CHAPTER 3 SIMULTANEOUS LINEAR
Elimination method 38
Practice Problem 39
Practice Problem 41
Practice Problem 45
Demand Function 47
Supply Function 49
Practice Problem 52
Equilibrium 55
Practice Problem 62
CHAPTER 4 ALGEBRA
Introduction 63
Practice Problem 63
Practice Problem 64
Practice Problem 64
Practice Problem 65
Solving linear inequalities 66
Practice Problem 66
Practice Problem 68
Intersecting Regions 69
Practice Problem 72
Introduction 75
Operations of problem 76
Expanding 78
Practice Problem 79
Introduction 81
Evaluating permutations 82
Practice Problem 82
Combination 83
Practice Problem 83
Introduction 84
Types of matrices 84
Square matrix 84
Identity matrix 85
Column Vector 85
Null vectors 85
Practice Problem 86
Operation of Matrices 87
Additional of matrix 87
Subtraction of matrix 88
Scalar multiplication 88
Matrix transportation 89
Multiplication of matrix 90
Practice Problem 90
Application in Business 92
Practice Problem 94
Inversion of Matrices 95
Introduction 167
Discriminant 229
Introduction 241
Total Revenue 241
Profit 244
Introduction 250
Introduction 274
Introduction 293
Introduction 313
Introduction 343
Degeracy 369
Introduction 378
Introduction 406
A set is a collection of objects or elements. A set of student may contain students who are male
and female and also students registered for different degree programs. The set brace { } are
used enclose numbers belonging to the set.
A set containing of numbers1, 2,3, 4, 5, 6, 7, 8, 9 and 10may be written as follow
{1, 2, 3, 4, 5, 6, 7,8, 9,10}
Elements are numbers contained in a set. The above is a set of number 1 up to 10.
When writing down the set of multiples of 4
The listings of the multiples can be done as follows.
{4, 8, 12, 16, 20, 24 …}
Notice that there has been a pattern established and the last three dots indicate the patterns
continue to the last term which could be the nth term.
Consider listing the multiples of 4 which are less than 100
Thus to show that an element belong to a set of prime numbers less than ten {2, 3, 5, 7}
We can write as follows
5 ∈ {2, 3, 5, 7}
5 is an element of the set containing 2, 3, 5 and 7. Also 3∈{2, 3, 5, 7}
If we want to show that an element is not an element of the above set we place slash through
the symbol as follows
11 ∉{2, 3, 5, 7}
When naming sets we use capital letter for example let the above set be A, written as follows
A={2, 3, 5, 7}
then 3 ∈ A and 11∉ A
Two sets are equal if they contain the same elements for example A= {1, 2, 3} and B= {3, 2, 1}all
contain exactly the same elements and are equal.
In symbols it is written as follows
{1, 2, 3}={3, 2, 1}
Sets that do not contain exactly the same elements are not equal. For example set C = {4, 5, 6}
and D = {7, 8, 9} are not equal.
In symbols it can be written as follows
{4, 5, 6} ≠ {7, 8, 9}
¥= {0,1, 2, 3, 4, 5,...}
- used to represent set of natural numbers ,
- represent positive and negative integer, = {+4, +3, +2, +1, -1, -2, -3, -4}
- represent a set of rational numbers, = {1.2, 1.3, 1.4, 1.5}
- represent set of real numbers- ={
CHAPTER 1 Set theory and counting number 3
Intersection of Sets
Example 1.1
Venn Diagram
Example 1.2
A∩B
A 1, 3, 4, 7 2, 6 8, 9, 10 B
CHAPTER 1 Set theory and counting number 5
Example1.3
Consider the following Set C which is {3, 5, 7, 9} and set C is a subset of set D { 1, 2, 3, 4, 5, 6, 7,
8. 9} then drawing the Venn diagram is draw as follows
C ∪ D = {1, 2, 3, 4, 5, 6, 7, 8, 9}
U = {1, 2, 3, 4, 5, 6, 7, 8, 9}
D 2, 4, 6, 8 1, 3, 5
C
7, 8
Example 1.4
Given that E = {1, 2, 3, 4, 5, 6, 7, } and 8, 9 and 10 are not contained are compliments of E that is
E' ={8, 9, 10} this can be drawn as shown in the Venn diagram.
E
E'
E 1,2, 3, 4, 5. 6,7
s E'
8, 9, 10
Two sets which have no elements in common are said to be disjoined sets. For example set
K = { 12, 13, 14, 17} and H = {11, 15, 16, 18, 19 }
CHAPTER 1 Set theory and counting number 6
H 11,15,16,18,19 K 12,13,14,17
Principle of counting
Consider set A if we denote the number of elements in set A as discussed earlier we can
symbolically write it as n(A)
If set A is given by A = {1, 2, 3, 4} the we denote the number of elements contained in set A to
be n(A) = 4 and if another set B is given by B = {a, b, c, d, e, f, g, h, h, I, j, k} then n(B) = 11
If set C is an empty set or null set then C = ∅ and can be denoted by n(C) = 0.
Principle of Inclusion-Exclusion
Let consider two set A and B
A = {a, b, c, d, e, f, g, h}
B = {b, d, f, k, l, m}
Then the universal set will be
A = {a, b, c, d, e, f, g, h, k, l, m} then n(A) = 11
A ∩ B = {d, d, f} then A ∩ B = 3
A = {a, b, c, d, e, f, g, h} then n (A) = 8
B = {b, d, f, k, l, m} then n (B) = 6
In general we can use the Inclusion-Exclusion principle which states that given two sets the
number of the union is equal to the number of the first set plus the number of the second set
minus the intersection of the two sets
n(A ∪ B) = n(A) + n(B) – n(A ∩ B)
To explain this further lets consider the above example
n(A ∪ B) = 11 n(A) = 8 n(B) = 6 n(A ∩ B) = 3
n(A ∪ B) = n(A) + n(B) – n(A ∩ B)
11 = 8 + 6 – 3
CHAPTER 1 Set theory and counting number 7
Example 1.5
In the year 2009, five hundred students graduated in Africa Nazarene University. Of these 500
students, 310 had degrees in business of any sort, 238 had undergraduate degrees in business
and 184 had master’s degree in business.
Required
How many students had both undergraduate and master degree in business?
Solution
Let
A = {students with an undergraduate degree in business}
B = {students with masters degree in business}
Then
A ∪ B = {students with at least on degree in business}
A ∩ B = {students with both undergraduate and masters in business}
So n(A) = 238 n(B) = 184 n(A ∪ B) = 310
The question is asking as to check for the n(A ∩ B). By Inclusion-Exclusive principle we have
n(A ∪ B) = n(A) + n(B) – n(A ∩ B)
310 = 238 +184 - n(A ∩ B).
n(A ∩ B) = 112
Sets Operation
A ∪B = B ∪A = Commutative law for Union
A ∩B = B∩A = Commutative law for intersection
A ∪ (B ∪ C) = (A ∪ B) ∪ C = Associative law for union
A ∪ (B ∪ C) = (A ∪ B) ∪ C = Associative law for intersection
A ∪ (B ∩ C) = (A ∪ B) ∩ (A ∪ C) = Distributive law for union
A ∩ (B ∪ C) = (A ∩ B) ∪ (A ∩ C) = Distributive law for intersection
Application of Venn
Example 1.7
A survey conducted of 600 students at Africa Nazarene University produced the following
results.
190 of the students read Daily Mirror;
180 of the students read Telegraph newspaper;
500 read Magazines;
130 read Daily Mirror and Telegraph newspaper;
110 read the Telegraph newspaper and Magazines;
130 read Daily Mirror and Magazines:
90 read all three.
Solution
Let letter D represent the Daily Mirror
Let letter T represent Telegraph Newspaper
Let letter M represent the Magazines
Thus
The number of sets in Daily mirror are n(D) = 190
The number of sets in Telegraph Newspaper are n(s) = 180
The number of sets in Magazines are n(M) = 500
The number of elements of intersection of Daily Mirror and Telegraph Newspaper
n(D ∩ S) = 130
The number of elements of intersection of telegraph Newspaper and Magazines
n(S ∩ M) = 110
CHAPTER 1 Set theory and counting number 9
The number of elements of intersection of Daily mirror and Magazines n(D ∩ M) = 130
Intersection of the three n(D ∩ S ∩ M) = 90
Those who read Daily Mirror and Magazines only are 130- 90 = 40
Those who read Daily nation and telegraph Newspaper 130 – 90 = 40
Those that read Telegraph Newspaper and Magazines only = 110 – 90 =20
350
40
20
D 20 90 S
40 30
Answers
a. None of the publication 600 – 590 =10
b. Magazine only 350
c. Daily mirror and Telegraph but not Magazine 40
CHAPTER 1 Set theory and counting number 10
Example1.8
Infotell a research firm collected the following information about particular buying behavior of
certain families and gave the following information;
150 families bought food, clothes and luxuries;
250 families bought food and luxuries;
420 families bought food;
200 families bought clothes and food;
60 families bought luxuries and clothes, but not food;
40 families bought luxuries, but neither food nor clothes;
100 families bought none of the three;
180 families bought clothes but not luxuries.
Solution
Let letter F represent food
let letter C represent clothes
Let letter L represent luxuries
Thus
The intersection of the three n(F ∩ C ∩ L) = 150
The number of set in food is n(F) = 420
The intersection of Food and Luxuries n(F ∩ L) = 250
The intersection of food and clothes n(F ∩ C) = 200
We have no intersection of clothes and luxuries n(L ∩ C)
CHAPTER 1 Set theory and counting number 11
U = 750
Clothes
130
50
60
150
Food 120 Luxuries
100 40
Practice Problem
1. In certain college club of Abel, Ang, Ban, Charles and Debal are doing a accounting
majors with Ang and Debal being student representative. Gor, Batt, Hesh, Ila and Joy are
choir members with Ila and Joy doing degree courses.
Use set A to represent club members, set B choir members, set C student
Representatives, set D accounting major students.
a) Specify element of the element of the four sets A, B, C and D
b) Draw a Venn diagram representing sets A, B, C and D
c) Identify members of the following sets and state in words the implication of
d) A ∩ C, D ∪ C and D ∩ C
e) Establish a universal set of the student’s membership.
2. In a study on the pass rate of CPA sec IV class, 60 candidates passed QT, 80 passed FA III
and 50 passed law II. 20 passed QT and FAIII, 15 passed Law II and FAIII, 25 passed QT
and Law II while 10 passed all the three subjects.
a) What is the total number of candidates in the class?
b) If a candidate who fails one subject is referred, how many candidates were
referred?
CHAPTER 1 Set theory and counting number 12
3. The main daily newspapers in Town K are: A, B and C. The management of one dailies is
concerned about low sales volume of their paper. In a recent survey of 1000 families in
the town K the numbers that the various newspapers were found to be as follows:-
Newspaper No. of Readers
The people 280
The people and East Africa Standard 80
The East Africa Standard 300
The People and Daily Nation 100
The Daily Nation 420
The East Africa Standard and Daily Nation 50
All the three newspaper 30
5. Some enrolment totals Africa Nazarene University for the 1st trimester 2011/2012 are
the following;
6. Suppose set A has 8 elements, set B has 12 elements and set C has 10 elements.
8. A study by Strategic Research Consultants on the cause of business failure of 1500 micro
enterprise firms gave the following results:
a) Present the information above in a Venn diagram and determine the number of
micro enterprise firms that failed due to:
b) A poor location only
c) At least two of the causes mentioned above
d) Exactly one of the causes
9. A milling company ran an advertising campaign to popularize its products. After a month
the marketing department conducted a survey to gauge the success of the campaign.
They interviewed 250 people. Out of the 250, 70 had not seen the adverts. 130 of those
who saw the adverts had bought their products. In total 160 people bought the
CHAPTER 1 Set theory and counting number 14
company’s products. How many of the interviewees neither saw the adverts nor bought
the company’s products?
10. A certain publisher is interested in the reading habits of the people in a certain small
city. A survey indicates that the number of subscribers ( in thousands) to the Time
magazine is 25, the number of subscribers Economist is 18 and the number of
subscribers to the East African is 12. The number of subscribers to both Time and
Economist is 10, the number subscribing to both Time and the East African is 1, and the
number subscribing to both Economist and the East African is 2. The number of people
with subscriptions to all three magazines is 1.
11. The following represent 450 workers and the mode of transport that the use regularly
Determine:
12. In Mombasa city, three newspapers A, B and the C. A survey shows that 30% of the
population of the city read A. B is read by355 read C and 155 read both the A and B. 5%
read both A and the C, 6% read both the A and the C and 2% read all the three.
a) Draw a Venn diagram to represent the information
b) What percentage of the city dwellers read none of the papers
c) How many read at least two of the papers
d) Africa Nazarene wants to advertise in two newspapers. Which two newspaper
would give them the best coverage
CHAPTER 2 LINEAR EQUATIONS
Learning Objectives
At the end of this chapter the student should be able to do the following:
• Simple addition, subtraction, multiplication and division of positive and
negative numbers;
• Perform simple operation on a number line;
• Identifying and plotting points on Cartesian plane;
• Getting gradient of a line;
• Drawing a line on Cartesian plane using gradient and its intercept;
• Solving simultaneous linear equations.
Number line
A number line is a horizontal line with both negative and positive numbers. Generally as
student of mathematics if you cant understand the number line you miss the point of
mathematics.
A number line consist of integers.
{ 1, 2, 3, 4, 5, 6, 7, } These numbers are called counting numbers or natural numbers.
In general between two integers are rational numbers.
For instance between 1 and 2 there are 1.2, 1.5, 1.8, .1.9.
These numbers can be written in ratios as follows respectively.
6 3 9 19
, , ,
5 2 5 10
Thus rational numbers are numbers that can be expressed in ratio of integers.
Numbers that are not rational are called irrational numbers. For instance irrational numbers
are.
π , 2, 6, 7, 10, 12
CHAPTER 2 Linear equations 16
Integers
When you think of integer it better to think of zero, whole numbers which are positive
and negative. Always when you think of a number line consider it as made of integers.
For instance 23, 1 ,457 -128, -2367 are all integers, but numbers like3/5,0.0001, 2.23004,
and -4.3 are not.
In general we that an integer is a set of {-5,-4,-3,-2,-1, 0, 1, 2, 3, 4, 5, } the three dots
means you keep on going both directions.
Which means x is less than or equal to y .It coincides on the number line.
Again x and y can be written as follows
x> y
This means that x is greater than y and that x is on right of y on the number line.
This means that x is greater than y or equal to y and that it coincides on the number line
x≥ y
Addition and Subtraction.
To add or subtract numbers in a number line we think of walking forward and backwards
f h h k f d
Example 2.1
Evaluate
i) -3 – 4
ii) -7 + 10
iii) -5 + 4
Solution
To evaluate
-3 - 4
It will be x (+y)
You at point (-3) you move 4 units or steps on your left or backwards
CHAPTER 2 Linear equations 17
Figure 1.1
Count 4 units or steps on left
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3
Thus -3 - 4 = -7
To evaluate
-7 + 10
In terms of x and y it x +y
At point (-7) you move 1steps forward. Picture this that you own your friend 7 sweets and now
you have just brought 10 sweets if you give your friend 7 sweets you are left with 3 sweets.
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 5 6
Thus -7 + 10 = 3
CHAPTER 2 Linear equations 18
To evaluate
-5 + 4
In general x + y
At point (-5) you move 4 steps forward.
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 5 6
Thus -5 + 4 = -1
Practice Problems
Multiplication of numbers involving negatives and positives one must note following order
of multiplication.
( − × − = + ) negative × negative = positive
( − × + = − ) negative × positive = negative
( + × − = − ) positive × negative = negative
( + × + = + ) positive x positive = positive
From the above rule we evaluate the following respectively.
3 × -5=-15
-4 × 4=-16
-5 × -6=30
7 × 9=63
Gradients
Evaluate
−3 × 6 × −9 × 2
−18
CHAPTER 2 Linear equations 20
Solution
−3 × 6 × −9 × 2 = −324
324
= −18
−18
Any given line has two of the points which one can use to plot a line. These are called the
coordinates. Coordinates are inform of x and y. Consider line PQ, the line has two points P (x, y)
and Q (x, y).
This line can plotted in graph on x on the horizontal axis and y on the y axis this is called as the
Cartesian plane.
O is the intersection of the x-axis and y- axis and is called the origin that is the point with the
coordinates (0, 0)
Figure 1.4
Vertical axis
or y- axis
Gradients
The change on the y-axis over the change of the x-axis is called gradient.
We can think of the gradient of a line is the measure of its steepness or angle of slope.
If we have two points the gradient of the line is defined as the vertical change divided by the
horizontal change.
In general if we have point A ( x1, y1 ) and B ( x2 , y2 ) the gradient of the line segment AB is given
as follows.
From the line AB we can express this as:
Change in y (y distance) ∆y
Change in x (x distance) =
∆x
∆( y2 − y1 )
(Where ∆ is the Greek capital D ‘Delta’ which is used to mean
∆( x2 − x1 )
change)
Diagrammatically the line AB can be represented as bellow on Cartesian plane.
Figure 1.5
Change in y (∆y )
y-axis
A( x1 y1 ) Change in x (∆x)
x-axis
CHAPTER 2 Linear equations 22
Example 2.2
Consider three points A, B, and C .A(0,3), B ( 2, 4) and C (10, 8)
Find the gradient of AB and BC.
What can you say about the points.
Solution
Figure 1.6
9 C (10, 8)
8
7
6
5 B (2, 4)
4
3
A (0, 3)
2
1
1 2 3 4 5 6 7 8 9 10
∆y 4 − 3 1
= =
∆x 2 − 0 2
Taking point AB, A(0,3),and B (2,4) we can also obtain the gradient
∆y 8 − 4 4 1
= = =
∆x 10 − 2 8 2
CHAPTER 2 Linear equations 23
∆y 8 − 4 4 1
= = =
∆x 10 − 2 8 2
What we can see is that the gradient is the same .Thus A, B, and C are points on a straight line.
In general any two pairs of a point selected they give the same gradient
Figure 1.7
9 C (10, 8)
8
7
B (2, 4)
6
5
4
3 A (0, 3)
2
1
1 2 3 4 5 6 7 8 9 10
Practice Problem
2. If point (1, 1 ) and (4, 7) and (5, y) are point on a straight line find the value of y.
CHAPTER 2 Linear equations 24
4. The four corners of quadrilateral are (1, 1), (2, 2), (4, 3), and (5, 3). Show that the
quadrilateral is trapezium.
5.Let points A, B and C have coordinates respectively .If A ( x1, y1 ) , B ( x2 , y2 ) and C ( x3 , y3 ) are on
straight line show that
0
y1 x2 − y2 x1 + y2 x3 + y3 x2 + y3 x1 − y1 x3 =
CHAPTER 2 Linear equations 25
Equation of Straight
The gradient is the steepness or the slope of line, curve, or arc. When we have the gradient of a
straight line we can be able to find the equation given any particular point that it passes
through.
The standard form of the equation of a straight line is give by
y mx + c
=
∆( y − y1 )
=m
∆( x − x1 )
y − y1
( x − x1 ) m( x x1 )
=−
x − x1
The equation can be expressed as follows using the points (x, y) and (4, 2)
y−4
= −2
x−2
y − y1 = m( x − x1 )
y mx + c
=
y mx + c
=
Example 1
Find the gradient of the line through the points (4, 7), (5, 9)
Solution
∆y 9 − 7 2
= = = 2
∆x 5 − 4 1
y−7
=2
x−4
y−7
( x − 4) 2( x 4)
=−
x−4
y − 7 = 2x − 8
y = 2x − 8 + 7
y 2x −1
=
This is an equation of a positive gradient when plotting the graph the line moves from left to
right upwards.
CHAPTER 2 Linear equations 27
Figure 1.8
9
8
7 Positive gradient
6
5
4
3
2 y 2x −1
=
1
-1 1 2 3 4 5 6 7 8 9 10
Find the equation of line passing through the following points (2, 4) and (1, 6)
The gradient is given as
Solution
Example 2
∆y 6 − 4 2
= = = −2
∆x 1 − 2 −1
y − 4 =−2( x − 2)
y − 4 =−2 x + 4
y =−2 x + 4 + 4
y= −2 x + 8
Plotting the graph the line moves (slopes) from top left to right downwards. This kind of line is
called negative gradient.
9
Figure 1.9
8
7
6
5 Negative gradient
4
3
2 y=−2 x + 8
1
1 2 3 4 5 6 7 8 9 10
Example 2.3
Thus taking any point on the line (x, y) and taking point (4, 2)
We get the following
y − 2= 0( x − 4)
y−2= 0
y=2
Figure 2.0
9
8
7 Zero or horizontal
6 gradient
5
4
3
2
y=2
1
1 2 3 4 5 6 7 8 9 10
Suppose you have two points (4, 2) and (4, 6) the gradient is
∆y 6 − 2 4
= = = ∞
∆x 4 − 4 0
x = 1, 2,3, 4...........
Figure 2.1
98 Vertical gradient
7
6
5
4
x = 1, 2,3, 4,5...n
3
2
1
1 2 3 4 5 6 7 8 9 10
Practice Problem
Sketching a Graph
When sketching a graph of a straight line there are two ways which can be used.
Method 1
Figure 2.2
8
7
6
5
4
3
2 y=−2 x + 8
1
1 2 3 4 5 6 7 8 9 10
CHAPTER 2 Linear equations 32
Method 2
This an alternative method which student consider to be the simple
Using the same equation of 2 x + y = 8 plot the graph using method 2
Solution
Setting x = 0 you get
2(0) + y =8
0+ y = 8
y =8
2x + 0 =8
2x = 8
x=4
Using these coordinates (0, 8) which give the y-intercept that is where the line cuts on intersect
with the y axis on the Cartesian plane.
The coordinates of (4, 0) this is where the line will intersects with the x-axis called the x-
intercepts.
Figure 2.3
y − Intercept
8
7
6
5
4 y=−2 x + 8
3
2
x − Intercept
1
1 2 3 4 5 6 7 8 9 10
CHAPTER 2 Linear equations 33
This is the easiest method in algebra but remember if you are looking for accurate point it is
necessary to use a graph paper or solve the simultaneous equation.
Practice Problem
Find the coordinate of the two points of the following lines and hence sketch their graphs.
i) x − 4y =
8
ii) 3x − 4 y =
7
iii) − x + 2y =6
Points of intersection
A point of intersection is where two or more straight line cut each other or meets.
We will be dealing with simultaneous equation with two or more unknowns. In general a point
of intersection gives the solution of any given simultaneous equations.
Example 2.4
3x + 4 y =
18.............................(i )
6x − 3y =3...............................(ii )
Required
CHAPTER 2 Linear equations 34
Solution
From the previous topic we are already familiar with how to get the points
Take the first equation
3x + 4 y =
18.............................(i )
It passes through the point (0, 4.5) and (6, 0)
6x − 3y =3...............................(ii )
The second equation passes through points (0, -1) and (0.5, 0)
These two line sketched on a graph the point of intersection is (2, 3)
Always when you have gotten the solution it is better to verify whether you have gotten the
right solution by substituting the values.
By doing this you are assured of minimizing common mistakes that students make not that they
didn’t know but they overlooked. I call these mathematical remedy.
Figure 2.4
8
7
6x − 3y =
3
6
5
4 Point of
intersection (2,3)
3
2
3x + 4 y =
18
1
-1 1 2 3 4 5 6 7 8 9 10
CHAPTER 2 Linear equations 35
However some simultaneous equation that has no point of intersection that means that they
have no solution.
Example 2.5
Solution
Using either of the methods discussed earlier for our case let use the second method.
Taking equation
2x + 4 y =
11................................(i )
When x = 0 we get
2(0) + 4 y + 11
4 y = 11
y = 2.75
So we have points (0, 2.75)
Also when y = 0
2 x + 4(0) =11
2 x = 11
x = 5.5
The second point on the line is (5.5, 0)
Considering the second equation
6 x + 12 y =33..............................(ii )
When x = 0
6(0) + 12 y =33
12 y = 33
y = 2.75
The first point on the second line is (0, 2.75)
When we set y = 0
6 x + 12(0) =33
6 x = 33
x = 5.5
CHAPTER 2 Linear equations 36
Figure 2.5
6 x + 12 y =
633
5 Coincidental lines
4
3
2
1
1 2 3 4 5 6 7 8 9 10 2x + 4 y =
11
The above lines on the same line and are called coincident line
Practice Problem
5 x + 10 y =25 5x − 7 y =9
a) b)
15 x + 30 y =75 x− y = 3
7x + 9 y =
3
b)
2x − 5 y =
16
SIMULTANEOUS LINEAR
CHAPTER 3 EQUATIONS
Learning Objectives
Example 3.1
3x + 4 y =18.............................(i )
6x − 3y = 3...............................(ii )
The coefficient of the first equation (i) of x is 3 and the coefficient for the second equation for
the second equation (ii) of x is 6
We can multiply the equation (i) by 2 so that we can eliminate x by subtracting equation (ii)
from the result of equation (i)
= 3 x + 4 y 18................................(i )..... × 2
= 6 x − 3 y 3..................................(ii ).... ×1
The result of equation (i) we subtract equation (ii)
x cancel when
subtracted
6x + 8 y =
36 Subtract equation (ii) from (i)
6x − 3y =3
CHAPTER 3 Simultaneous Linear equations 38
11 y = 33
y=3
3x + 4 y =
18.............................(i )
We substitute y = 3
3 x + 4(3) = 18
3 x + 12 = 18
3=x 18 − 12
3x = 6
x=2
Remember the mathematical remedy check whether the value satisfy the equation
There are four stages we are supposed to remember when using the elimination method.
Stage 1
Add or subtract a multiple of one equation to from the other to eliminate x or y depending on
your choice of elimination.
Stage 2
Solve the resulting equation for x or y
Stage 3
Substitute the value of x or y into one of the original equation to deduce x or y.
Stage 4
Mathematical remedy ,check the values whether they satisfy the equations.
3x + 4 y =
18.............................(i )
6x − 3y = 3...............................(ii )
We can choose which unknown value to substitute
For instance let make x the subject of the equation (i)
3x + 4 y =18.............................(i )
4
Use 6 − y as your value of x to substitute from equation (ii)
3
6x − 3y = 3.............................(ii )
4
6 6 − y − 3y = 3
3
36 − 8 y − 3 y =
3
36 − 11 y = 3
−11 y =− 3 36
−11 y = −33
y=3
With the value of y = 3 our x = 2
The above method is called substitution method.
Practice Problem
6 x + 10 y =
38
b)
4 y − 4 y + 22 =
0
3x + 2 y =
10
c)
−x + 2 y =8
CHAPTER 3 Simultaneous Linear equations 40
When solving a simultaneous equation with three unknowns it is important to understand that
you must derive other two equations from the three equations to get equation (iv) and (v)
Example
Consider the following systems
2 x + 6 y − 2 z = 8..................................................(i )
4 x + 2 y + 2 z = 20................................................(ii )
6 x − 2 y + 2 z = 8...................................................(iii )
2 x + 6 y − 2 z = 8......................................................(i )
4 x + 2 y + 2 z = 20.....................................................(ii )
4 x + 12 y − 4 z = 16
x cancel
out 4 x + 2 y + 2 z = 20
10 y − 6 z = −4.......................................................(iv)
Using the (i) and the (iii) equation to obtain the (v) equation
2 x + 6 y − 2 z = 8.........................................................(i )
6 x − 2 y + 2 z = 20........................................................(iii )
2 x + 6 y − 2 z = 8.........................................................(i )......... × 3
6 x − 2 y + 2 z = 20........................................................(iii )
CHAPTER 3 Simultaneous Linear equations 41
6 x + 18 y − 6 z = 24
Y 6 x − 2 y + 2 z = 20
cancels 20 y − 8 z = 4.......................................................(v)
Now taking equation (iv) and (v) we can use either of elimination on substitution method to
solve for y and z
10 y − 6 z = −4.......................................................(iv)
20 y − 8 z = 4.......................................................(v)
20 y − 12 z = −8
20 y − 8 z = 4
20 y − 12 z = −8
20 y − 8 z = 4
− 4 z = −12
z=3
20 y − 8(3) = 4
20 y = 4 + 24
20 y = 28
28
y=
20
y = 1.4
When you have the values of y and z we can substitute our original three equation the value
of x by taking any of the equation.
Taking equation (i)
CHAPTER 3 Simultaneous Linear equations 42
2 x + 6(1.4) − 2(3) = 8
2 x + 8.4 − 6 = 8
2 x = 8 − 8.4 + 6
2 x = 5.6
x = 2.8
Practice Problem
8q − 3s + 2t = 20
b) 6q + 3s + 12t = 35
4q + 11 y + 11 =33
2a − 3b + 10c =3
c) −a + 4b + 2c =20
5a + 2b + c =−12
x1 + x2 + 3 x3 − x4 =
2.......................................(i )
2 x1 + x2 − 3 x3 + x =0.....................................(ii )
3 x1 + x2 + x3 + x4 =−2...................................(ii
CHAPTER 3 Simultaneous Linear equations 43
Solution
Replace equation (ii) with equation (i) time 2
x1 + x2 + 3 x3 − x4 2.......................................(i )..... × 2
=
2 x1 + x2 − 3 x3 + x =0.....................................(ii )
2 x1 + 2 x2 + 6 x3 − 2 x4 =
4.......................................(i )
2 x1 + x2 − 3 x3 + x =0.............................................(ii )
2 x1 + 2 x2 + 6 x3 − 2 x4 =
4...........................................(i )
2 x1 + x2 − 3 x3 + x = 0.................................................(ii )
3 x2 − 9 x3 + 3 x4 = −4..........................................(iv)
x1 + x2 + 3 x3 − x4 2...........................................(i )........ × 3
=
3 x1 + x2 + x3 + x4 =−2.........................................(iii )
3 x1 + 3 x2 + 9 x3 − 3 x4 =
6...........................................(i )
3 x1 + x2 + x3 + x4 = −2...............................................(iii )
4 x2 − 8 x3 + 4 x4 = −8..........................................(v)
We can take equation (i), (iv) and (v) to replace equation (ii) and (iii) respectively. Now instead
of writing (iv) and (v) we are going to use (ii) and (iii)
3 x1 + 3 x2 + 9 x3 − 3 x4 =6...........................................(i )
3 x2 − 9 x3 + 3 x4 =−4..........................................(ii )
4 x2 − 8 x3 + 4 x4 =
−8..........................................(iii )
1
To eliminate x 2 we divide equation (ii) by 3 or multiply by and equation (iii) by 4
4
CHAPTER 3 Simultaneous Linear equations 44
1
3 x2 − 9 x3 + 3 x4 =
−4..........................................(ii ) ……… ×
3
We obtain the following
4
x 2 − 3 x3 + x 4 = −
3
1
In the (iii) equation when we divide both sides by
4
1
4 x 2 − 8 x3 + 4 x 4 = −8..........................................(iii )............. ×
4
x 2 − 2 x3 + x 4 = −2........................................................(iii )
Replace the (iii) equation with the (ii) by getting the difference
x 4 cancels
x 2 cancels
4
− 3 x3 − −2 x3 = − − −2
3
2
x3 = −
3
2 4
x 2 − 3(− ) + x 4 = −
3 3
10
x2 = − − x4
3
10 2
x1 − − − x 4 + 3 − − x 4 = 2
3 3
10
x1 + + x 4 − 2 − x 4 = 2
3
10
x1 + − 2 = 2
3
10
x1 + − 2 − 2 = 0
3
10
x1 + − 4 = 0
3
10 − 12
x1 + =0
3
2 2
x1 − = 0 ⇒ x1 = 0 +
3 3
2
x1 =
3
2 10
Using equation (i) can get the value of x 4 having the values of x1 = , x 2 = − − x 4 and
3 3
2
x3 −
3
x1 − x 2 + 3 x3 − x 4 = 2
x1 − x 2 + 3 x3 − x 4 = 2
2 10 2
− − − x 4 − 3 − − x 4 = 2
3 3 3
2 10
+ +x
3 3
Practice Problem
Find the values of x1, x 2 , x3 and x 4 from the following linear systems
x1 − x 2 − x3 + x 4 = 1
x1 + 2 x 2 + x3 = 1
2 x1 + x 2 − x 4 = 3
− x1 + x 2 − x3 + x 4 = 0
APPLICATION OF LINEAR
EQUATION TO BUSINESS
Learning Objectives
The application of linear equations in business is also called demand and supply analysis
Demand Functions
Demand function is an equation that shows the relationships between the quantity demanded
and other factors like tastes, presence of substitute and price
We are going to concentrate on price as a factor that affect demand.
Remember the formulae we had of y = mx + c
The value of y depends on the value of x thus y is called the dependent variable.
The value of x on the other hand does not depend on y but determines y thus in general it is
called independent variable.
When we replace y by P which represent the price and x replaced by Q which is the price.
We can introduce parameter or constants that is a and b
In general the equation will be as follows.
P = aQ + b
Figure 2.6
P=
−aQ + b
Price ∆y Change in x
∆y
= −a
∆x
Change in x (∆x)
Quantity
Demand Function
The marketing management of Beta shoe company noticed that on a certain month the safari
boots cost KES 1000 ,the customers bought 600 pairs and the cost was KES 1600, 300 pairs were
bought.
Assuming the demand function is a linear function calculate
The line that passes through the points
Sketch the graph
Find the change in
a) P when Q = 700
b) Q when P = 2000
Solution
P − 1600
= −2
Q − 300
P − 1600
(Q − 300) −2(Q − 300)
=
Q − 300
−2Q + 2200
P=
Sketching the graph we are going to use the following coordinate. Remember the previous
method we were using to get the coordinates.
When P = 0 the value of Q is 1100 so the coordinates are (1100, 0)
On the other hand when Q = 0 , P is equal to 2200 hence the coordinates are (0, 2200).
We plot the graph as follows.
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 49
Figure 2.7
2200
Quantity 1100
Supply Function
The equation of supply consists of the ratio or relationships between the quantity supplied and
factors that affect supply such as price. In this course we are going to look at the price as our
major factor that affects supply.
Figure 2.8
P aQ + b
=
Price ∆y Change in y
∆y
=a
∆x
Change in x (∆x)
Quantity
The supply curve move from bottom left to upwards right as shown by the figure 2.8 above. The
supply curve has a positive slope coefficient that is a
Example 3.6
In a Datacom offer the sales manager observed that when the price of a flash disk 1GB was fixed
at KES 400 the quantity supplied was 250 and when the price changed to KES 250 the quantity
supplied was 200. Assuming that price was the only factors that affected supply and other
factors remains constants.
Calculate
the slope
Obtain the equation that passes through these points.
Sketch the graph of the equation obtained.
Hence find the value of
i) P when Q = 400
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 51
Solution
We obtain the equation passing through points (400, 250) and (250, 200) by taking (Q, P) and
any point as follows.
∆( P − 250)
=3
∆(Q − 200)
P 3Q + 50
=
Hence using the equation P = 3Q + 50 we can be able to find the value of P when Q = 400
P 3Q + 50
=
Q = 400
Substitute Q by 400
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 52
=P 3(400) + 50
=P 1200 + 50
P = 1250
Also given the value of P = 650 we can obtain the value of Q as follows using the same
equation. P = 3Q + 50
Substitute P with the value given of 650
P 3Q + 50
=
P = 650
650
= 3Q + 50
650 − 50 = 3Q + 50 − 50
600 = 3Q
200 = Q
Practice Problem
1. Suppose a certain commodity has the following linear demand and supply. When the
price is 7500 the quantity is 100uniits, when the price is 4625 the quantity is 750 units and
when the price is 2525 the quantity is 100 units, when the price is 1525 the quantity is 200
units
a) Obtain the linear equation that go through the points given above, clearly explain
which is the demand and supply curve.
b) Equilibrium price and quantity.
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 53
2. At a unit price of sh. 16,000, the demand of a product is 300 units and at a unit price of
sh.48,000 the demand is 100 units. At a unit price of sh. 30,000 the supply is 550 units
and at a unit price of sh. 50,000, the supply is 650 units.
3. The quantity demanded per month of product is 250 units when the unit price KES 1400.
The quantity demanded per month is 1000 units when the unit price is KES 1100. The
suppliers will market 750 units if the price is KES 600 or lower but will supply 2250 units
if the price is KES 800. Both the demand and supply functions are known to be linear
4. Recently the government liberalized the consumer prices of maize. For the last six
months, the Economic Institute have been keeping the average monthly price and
quantity of maize consumed and supplied per bag in Kenya, The table shows this data;
5. The sales manager of Akamba Wood Carvings Ltd finds that he can sell 45 pieces per
week at a price of KES 80 per item, but if he changes the price to KES 100 per item he
can sell only 40 pieces per week. The production manager determines that the total
production cost of 45 items per week is KES 3,000 and that of 40 items per week is KES
2800
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 54
a) Assuming that the unit price is linear function of the quantity sold determine the
profit function.
b) Assuming the total production cost per week is a linear function of the quantity
produced, determine the cost function.
c) Calculate the level of sales that will maximize the weekly revenue.
d) Calculate the level of sales that will maximize the weekly profit
e) Determine the corresponding profit per item sold the weekly profit maximized.
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 55
Equilibrium
This is the state where the supply and demand are equal in other words it occurs when quantity
demanded is equal to the quantity supplied.
To get the equilibrium price and quantity we just equate the two linear functions of supply and
demand.
A graphical representation would look like one below.
Figure 2.9
Supply equation
Price Equilibrium
P
Demand equation
Quantity
Example 3.7
Required
a) Obtain the linear functions that passes through the points
b) Identify which of the two equations is demand and supply functions.
c) Calculate the equilibrium price and quantity
d) Sketch the graph of the equations.
Solution
P − 9500
= 11.5
Q − 3000
=P 11.5Q − 25000
The above is supply function since the Q coefficient 11.5 is positive thus we can write this one as
P = 11.5QS − 25000
Taking the other points in part (ii) we can obtain the slope just as we did in the first part.
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 57
P − 4525
= −20
Q − 2100
P − 4525 =
−20(Q − 2100)
P − 4525 =
−20Q + 42000
P − 4525 + 4525 =
−20Q + 42000 + 4525
−20Q + 46525
P=
The equation is a demand function since the coefficient of Q is negative that means it slopes
from top left to bottom right and can be expressed as follows.
P = −20QD + 46525
With our equations we can get the equilibrium price and quantity by equating them both.
−31.5Q =
−71525
−71525
Q=
−31.5
Q = 2271
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 58
P = 11.5QS − 25000
P = 1116.5
Example 3.8
Suppose a certain commodity has the following linear demand and supply
When the price is 7500 the quantity is 100uniits, when the price is 4625 the quantity is 750 units
and when the price is 2525 the quantity is 100 units, when the price is 1525 the quantity is 200
units
CHAPTER 3 Simultaneous Linear equations: Application Linear equation to business 59
Obtain the linear equation that go through the points given above, clearly explain which is the
demand and supply curve.
Solution
Change in price ∆P
a) =
Change in quantity ∆Q
P − 7500
= 11.5
Q − 1000
=P 11.5Q − 4000
The above is supply function because of the positive co-efficient of Q which is 11.5
Change in price ∆P
=
Change in quantity ∆Q
P − 1525
= −10
Q − 200
−10 ( Q − 200 )
P − 1525 =
CHAPTER 3 Linear equations: Application Linear equation to business 60
P − 1525 =
−10Q + 2000
−10Q + 3525
P=
11.5Q − 4000 =
−10Q + 3525
21.5Q = 7525
Q = 350
=P 11.5Q − 4000
=P 4025 − 4000
P = 25
Example 3.9
At a unit price of KES 16,000, the demand of a product is 300 units and at a unit price of KES
48,000 the demand is 100 units. At a unit price of KES 30,000 the supply is 550 units and at a
unit price of KES 50,000, the supply is 650 units.
Determine the market equilibrium point
CHAPTER 4 Linear equations: Application Linear equation to business 61
Solution
Demand function
P − 48000
= −160
Q − 100
−160 ( Q − 100 )
P − 48000 =
P − 48000 =
−160Q + 16000
P=
−160Q + 64000
Supply demand
P − 30,000
= 200
Q − 550
P=
200Q − 110,000 + 30,000
=P 200Q − 80,000
200Q − 80,000 =
−160Q + 64000
360Q = 144000
Q = 400
=P 80000 − 80000
P=0
Practice Problem
−12QD + 360
P=
P QD + 87
=
Where P, QS and QD represent the price, quantity supplied and quantity demanded
respectively.
Calculate the equilibrium price and quantity.
Find the value of P when the quantity of supply changes to 300
ALGEBRA
CHAPTER 4
Learning Objectives
Introduction
A number line which we met at the beginning of the chapter can be used to decide whether a
number is greater than or less than.
The symbols
< means it is less than
> means it is greater than
≤ means it is less than or equal to
≥ it means it is greater than or equal to
Consider the number line below
Practice Problem
8 ≥ -3 d) -2 ≥ -5 g) 7 > 0 > 12
15 ≤ 13 e) -7 ≤ 6 ≤ 10 h) -5 ≥ 0
CHAPTER 4 Algebra 64
x>5 c) x < −3 e) y ≥ 16
y ≤3 d) y > −32 f) y ≤8
Note
One can convert two simple linear inequalities into a compound inequality
Example 4.1
x ≤ 3 and x ≥ −7 ⇒ −7≤ x ≤3
CHAPTER 4 Algebra 65
Practice Problem
Note
For < and > circle the number
Practice Problem
Illustrate the following sets on a number line
d) − x ≤ −6 e) x ≥ 2x − 6 f) x > −12
1≤ x ≤7 b) 0 < x ≤ 8 c) −3 < x ≤ 8
1
3− x ≥6
5
Solution
2x – 4 < 2
2x < 6
X <3
1
3− x ≥6
5
1
− x ≥9
5
− x ≥ 45
x ≤ −45
Note
Dividing the unknown by a negative value, the inequality sign changes.
Practice Problem
Solve the following inequalities and illustrate the solution on a number line
a)8 – 4x ≤ 2 b) 5 + 3x ≤ 8 + 4x
CHAPTER 4 Algebra 67
c) 3x – 7 < 2 d) 3x – 2 ≥ x – 6
1 1
x +1≥ 5 h) 3 − x ≤ 5
2 2
Solve
3x + 1 > 13
2x – 4 ≤ 8
Solution
Again 2x – 4 ≤ 8 ⇒ 2x ≤ 12
⇒4 < x ≤ 6
Solve
-6 < 1 – 2x ≤ 8
CHAPTER 4 Algebra 68
Solution
The inequality can be reduced to two inequalities that is – 6 < 1 – 2x and 1 – 2x ≤ 8 and then
solved separately.
– 6 < 1 – 2x
-7 < -2x
3.5 > x
Again
1 – 2x ≤ 8
-2x ≤ 7
x≥ 3.5
⇒ -3.5 ≤ x 3.5
Practice Problem
x + 7 > 53 x+5>3
a) b)
x − 10 < 3 x −1 ≤ 5
1
x −3≤1 x +6>3
c) 2 d)
2x − 3 ≤ 5
x +7>3
1 1
e) 4 x + 2 ≤ x + 5 < 2 x + 9 f) x +1< x +2 ≤ x +2
2 8
Practice Problem
c) y > −3 d) 0 ≤ y < 6
e) x ≥ 12 f) −1 ≤ x ≤ 4
g) x ≥ 4, y < 2 h) y < 0
a) 2 x + y > 2 b) 5x + 2y ≤ 4
c) x + y ≥ 0 d) 8=
x 2y ≥ 6
e) 3=
x 4y ≤ 6 f) 3y − x ,5
g) y − x ≤ 2 g) 12=
x 3y > 9
Intersecting Regions
x= y > 0 y+x<4
x <3 b) y > 2
y>0 x +2 > 0
CHAPTER 4 Algebra 70
2x + y < 5 2x + y < 6
c) y < x + 3 d) x ≤ 2
y>0 y≤5
4 x − 3y < 6
y−x<0
e) x < 3 f)
y<5
y ≤6
The manager of caribou café has sufficient money to buy 100 crates of soft drinks of type x and
y. He wants to buy at least twice as many crates of type x as type y. he wants to buy maximum
80 crates of type x and at least 10 crates of type y.
Write down all the inequalities based on these facts.
Represent them on a graph.
The profit on a crate of type x is KES 120 and that of type y is KES 100. Find the number of crates
of each type that he should buy to make maximum profit and calculate this maximum profit.
Solution
x + y ≤ 100................................................................... ( i )
x ≥ 2y.......................................................................... ( ii )
x ≤ 80.......................................................................... ( iii )
y ≥ 10........................................................................... ( iv )
We need to get the points for equation (i) and (ii) because the rest can be drawn directly
CHAPTER 4 Algebra: Application of linear inequalities 71
x + y ≤ 100................................................................... ( i )
points x y
0 100
100 0
x ≥ 2y.......................................................................... ( ii )
points x y
20 10
40 20
100 x ≤ 80
80
60
x ≥ 2y
40
20
y ≥ 10
x + y ≤ 100
20 40 60 80 100
Profit
= 120 x + 100y
A = 120 ( 20 ) + 100 (10 ) = 3400
B = 120 ( 80 ) + 100 (10 ) = 10600
C = 120 ( 80 ) + 100 ( 20 ) = 11600
D = 120 ( 66 ) + 100 ( 33) = 11220
Practice Problem
1. For an in-service course in business management, at least four but not more than 9
workers are to be chosen. The ratio of the number of male workers to the number of
female workers must be less than 2:1 and there must be more males than females
2. A car park is to be laid for x matatus and y buses. Matatus are allowed 10 sq. meters of
space and buses 20 sq. metres, and there is only 500 sq meters available. Not more than
40 vehicles are allowed at a time. There are always both types of vehicles parked and at
the most 15 buses are allowed at a time. Write down all the inequalities based on these
facts. The parking charge for the matatus is KES 150 and that for the bus is KES 200 per
day. Find how many vehicles of each type should be parked on the lot in order to obtain
3. The manager of a company wishes to buy two types of machines A and B. Machine A
costs 1000 and B costs 750.he must buy at least one of each type. The total expenditure
on the machine is not to exceed 7500.machine A helps him cut down hi production cost
by KES 15 a week and B by KES 10 a week. How many of each type must he buy to make
a maximum savings?
4. Suppose you are the sport manager and you have been requested to build a rectangular
playing field x metres long and y metres wide. The perimeter of the field must be more
than 500 m but less than 700m. The length of the field must be less than twice its width
CHAPTER 4 Algebra: Application of linear inequalities 73
and the area of the field must not be more than 2500 square metres. Write down
5. A farmer has 70 acres of land available for growing maize and beans. The cost per
hectare for growing maize is KES 3000 and that for beans is KES 2000 and he has only
KES 18000. The labour per ha is 2 man-days for the maize and 4 man-days for the beans
6. The manager of a theatre wishes to divide the seats available into two classes A and B.
There are not more than 120 seats available; there must be at least twice as many B
class seats as there are A class seats; Class A seats are priced at KES 300 each and class B
at KES 200 each and at least KES 20000 should be collected at each show to meet the
expenses.
the number of machines of each type that should be in sue to give maximum profit per
hour and find this maximum profit.
8. A farmer has 50 acres of land which he plans to plant maize and beans. Each acre of
maize requires 6 people and each acre of beans require 2 people to work on it. He has at
least 60 people available. He must plant at least 10 acres of beans. The profit on maize is
KES 2000 per acre. If he plants x acre of maize and y acres of beans.
a) Write down 4 inequalities of x and y to describe his plan
b) Represent the 4 inequalities graphically
c) Determine the acreage for each crop for maximum profit.
BINOMIAL
CHAPTER 5 THEOREM
Learning Objectives
At the end of this section the students should be able to:
1 1
1 2 1
1 3 3 1
1 4 6 4 1
1 5 10 10 5 1
1 1
1 2 1
1 3 3 1
1 4 6 4 1
1 5 10 10 5 1
1 6 15 20 15 6 1
1 5 10 10 5 1
1 5 10 10 5 1
1 6 15 20 15 6 1
There are forms of binomial expansion that is positive integral values of the form ( x + y ) n and
negative integral values of the format ( x − y ) n
Expanding using the positive integer
CHAPTER 5 Binomial theorem 77
Example 5.1
Example 5.2
Solution
Multiplying
Example 5.3
Solution
When we are expanding the form ( x + y ) n with x = 4 , y = 6 x and n = 5 thus we can expand
as follows;
Example 5.4
Solution
This means that thus everywhere there is x in our expression we substitute with
0.2
(1 + 0.2)3 =+
1 3 x + 3 x2 + x3
x = 0.2
1 + 3(0.2) + 3(0.2) 2 + (0.2) 3
1 + 0.6 + 0.12 + 0.008
= 1.728
Practice Problem
Let think of numbers 1, 2, and 3 if these numbers were written in a vertical way or column way
we would obtain six different arrangements as listed below.
123
132
213
231
312
321
From the above arrangement, each arrangement is a possible or likely permutation of the
numbers 1. 2 and 3 and thus we can say that there are six permutations that we can obtain from
the three numbers.
In general there three operations that can be done as follows
This can be written in as for any natural number n ;
n ! = n (n -1)(n - 2)...(3)(2)(1)
n ! is read as n factorial
Thus given 7! = 7 × 6 × 5 × 4 × 3 × 2 × 1 the same case to 4! = 4 × 3 × 2 × 1
CHAPTER 6 Permutation & Combinations 82
Example 6.1
Evaluate
8!× 4
6!
9!
3!× 3
10!
2!× 5!
Solution
8!× 4 8 × 7 × 6 × 5 × 4 × 3 × 2 × 1 × (4)
= 224
6! 6 × 5 × 4 × 3 × 2 ×1
10! 9 × 8 × 7 × 6 × 5 × 4 × 3 × 2 ×1
= 20160
2!× 3 3 × 2 × 1 × (3)
10! 9 × 8 × 7 × 6 × 5 × 4 × 3 × 2 ×1
= 15120
2!× 5! 2 ×1× 5 × 4 × 3 × 2 ×1
Note that we can use dot instead of multiplication sign for example in number (1) above
8!.4 8.7.6.5.4.3.2.1.(4)
= = 224
6! 6.5.4.3.2.1
Practice Problem
1 Evaluate:
5! ii) 8! iii) 16! iv) 19!
CHAPTER 6 Permutation & Combinations 83
3!6! 14! 7!
v) vi) (3!) 2 vii) viii)
9! 5!4! 3!(2!) 2
2 Express in factorial notation
6×3
i) 5.4.3.2.1 ii) 7.9 iii) 11.7.9.2 iv)
2 ×1
7× 4×3
v)
3 × 2 ×1
Express in factors
Combination
n n n!
If is the number of combinations of n elements taken r at a time then =
r r (n − r )r !
Example 6.2
A club in certain university wants to form committees of 3 people from a group of 8 people.
How many committees can be formed?
Solution
8 8! 8.7.6.5.4.3.2.1
= = = 56
3 5!3! 5.4.3.2.1.3.2.1
Practice Problem
In a drama club in certain university wants to form committees of 5 people from a group of
12people. How many committees can be formed?
MATRICES
CHAPTER 7 ALGEBRA
Learning Objectives
At the end of this section the students should be able to:
Define a matrix order
Identify types of matrices
Identify elements in matrix
Determine the column of a matrix
Determine the row of matrix
A matrix is a rectangular array of elements. Elements are always real valued numbers.
Example of matrices.
a a12 1 0
a) 11 b)
a21 a22 0 1
Types of matrices
a) Square matrix
This is the matrix of the order n × n where n represent the rows and n represents the number
of column.
2 4
8 0
CHAPTER 7 Matrices Algebra 85
b) Identity matrix
Where all elements on principle diagonal are one in unity while others are zero.
1 0 0
1 0 0 1 0
0 1 and
0 0 1
d) Column Vector
4
5
7
e) Null vectors
All elements are zero be it in any order of the matrix for our case we use 2 × 2 matrix
0 0 0
0 0
0 0 and also 3 × 3 matrix 0 0 0
0 0 0
CHAPTER 7 Matrices Algebra 86
Practice Problem
Identify the following types of matrices
1 3 −2 0
3 −1 −7 1
[2 8 0 3] c)
1 −2 −2 5
−3 −4 1 2
1 0 0
0 0
0 0 d) 0 1 0
0 0 1
OPERATION OF MATRICES
Learning Objectives
At the end of this section the students should be able to:
Understand the different types of matrices.
Add and subtract matrices.
Use scalar to multiply matrices.
Operation of matrices multiplication.
1) Additional of matrix
a b e f
Taking two matrices A and B g
c d h
a + e b + f
We add A + B =
c + g d + h
Example 7.1
3 3 2 3 3 + 2 3 + 3 5 6
A and B the we add
= A+ B =
1 5 6 0 1 + 6 5 + 0 7 5
CHAPTER 7 Matrices Algebra: Operation of Matrices 88
2) Subtraction of matrix
a b e f
Again if we have two matrices C and D we subtract as follows
c d g h
a−e b− f
C−D=
c − g d − h
3 3 2 3
Example C and D then C-D is given as follows
1 5 6 0
3− 2 3− 3 1 0
C−D =
=
1 − 6 5 − 0 −5 5
3) Scalar multiplication
Example 7.2
Suppose the supply below announces a 10% increase on both the purchase and delivery of
these item what is the new unit cost matrix.
CHAPTER 7 Matrices Algebra: Operation of Matrices 89
6 4 2
1 1 0.5
An 10% increase means that the new unit cost are the former cost plus 0.1 the former cost that
is the new cost are 0.1 former cost matrix .
New cost matrix 1.10A
4) Matrix transportation
Given a matrix A when column and row of a matrix are interchanged to create a new matrix B
we say that A and B are transpose of each other.
2 1 4 2
A = 2 2 0 2
4 1 0 6
A transpose is written as AT
2 2 4
1 2 1
A =
T
4 0 0
2 2 6
Example 7.3
1 3 2
X =
4 1 2
CHAPTER 7 Matrices Algebra: Operation of Matrices 90
X transpose is written as X T
1 4
X = 3 1
T
2 2
5) Multiplication of matrix
This is a product of two matrix given A is m × n and matrix B is n × p . The matrix product AB is a
m× p
In multiplication of matrices, the number of column of matrix A must be equal to the number of
rows of matrix B.
Example
3 4
a b c d
Given that matrix X = 2 5 and C =
e f g h
6 10
Find XC
Before multiplying the matrices we must know the order of each matrix .
Matrix X = 3 × 2 and C= 2 × 4
The two matrixes must be compatible that is the number of column of the
first matrix must be equal to the number of row of the second matrix, the
product of the two matrices will be order of 3 × 4
CHAPTER 7 Matrices Algebra: Operation of Matrices 91
3 4
2 5 a b c d
e f g h
6 10
Practice Problem
2 3 1
A = 1 1 1 B = [1 0 6]
−3 0 −2
2 3
c= D=[ −1 −1]
3 2
0 2 1 1
3 0 1 6
E=
1 1 0 7
1 2 2 0
a) AT , BT , C T , DT , E T
b) A − B, B − C , D − E
c) A + B, C + D
d) BA, DC
CHAPTER 7 Matrices Algebra: Operation of Matrices 92
Application in Business
Example 7.4
ABC Ltd produces toy at two locations. They have an order to make stuffed animals. The
quantities of each type of animal to be produced at each plant may be expressed as 2 × 3
production p thus,
The amount and type of material (in cubic feet) required to manufacture each of animal may be
represented by 3 × 3 activity matrix A . thus
Determine:
Find the amount of each type of material required for each plant
Solution
1.5
[500 800 1300] 2 = ( 500 ×1.5) + (800 × 2 ) + (1300 × 2.5)= 5600
2.5
30
[500 800 1300] 35 =
( 500 × 30 ) + (800 × 35) + (1300 × 25) = 75,500
25
5
[500 800 1300] 8 = ( 500 × 5) + (800 × 8) + (1300 ×15)= 28, 400
15
Mombasa
1.5
[ 400 400 700] 2 = ( 400 ×1.5) + ( 400 × 2 ) + ( 700 × 2.5)= 3250
2.5
30
[ 400 400 700] 35 = ( 400 × 30 ) + ( 400 × 35) + ( 700 × 25) = 43500
25
5
[ 400 400 700] 8 = ( 400 × 5) + ( 400 × 8) + ( 700 ×15)= 15700
15
Practice Problem
1. Purity fashion makes trousers at two locations. They have an order to make ladies jeans
trousers.
The amount and type of material in cubic meter required to make each type of trouser may be
represented by 3 by 3 activity matrix A as below.
Find the amount of each type of material required for each plant.
A group operates a chain of filling stations in each of which are employed cashiers, attendants
and mechanics as show.
Learning Objectives
Let consider a square matrix which have the same number or rows and columns. When we
multiply
AI = A and IA = A
1 0
I=
0 1
The matrix is called identity matrix and it is equal to number 1 in ordinary mathematics.
Consider another matrix represented by letter A
Where
CHAPTER 7 Matrices Algebra: Inversion of Matrices 96
a b
A=
c d
To determine the matrix A −1 which is the inverse of A we can perform the following operation.
1 a b
A −1 =
ad − bc c d
AA −1 = I and A −1A = I
a b
A=
c d
First we interchange the numbers in the diagonal that is formed by the first number in the
matrix as follows
Interchanging “a”
d b
A= and “d”
c a
Second change the signs of the remaining diagonal that is made of the second number. If the
number are positive change signs to negative and vice versa
d −b Change signs to
A=
−c a negative
To obtain the determinant we multiply numbers in the first diagonal subtract the numbers in
the second diagonal
ad − bc
Then we are supposed to get the reciprocal of the determinant
1
ad − bc
CHAPTER 7 Matrices Algebra: Inversion of Matrices 97
Here we have obtained a scalar which we are supposed to multiply the matrix that we
interchanged and changed sign
To obtain
1 d −b
ad − bc −c a
When determinant of any matrix is zero that is A = 0 the is said to be singular matrix and when
the matrix has a determinant that of a number or non zero determinant it is said to be non-
singular matrix
Example 7.5
Determine the inverse of the following matrices and comment whether they are singular or non
singular.
2 3
A=
3 2
6 4
B=
3 2
3 7
C=
2 5
Solution
Let begin by calculating the determinant of matrix A
2 3
det(A) or A = =( 2 × 2 ) − ( 3 × 3) =−
4 9=−5
3 2
We can see that A ≠ 0 thus matrix A has a inverse and is a non-singular matrix
1
Since we have the determinant we need to get the reciprocal of -5 as −
5
Following the steps we need to interchange the first diagonal which is made of numbers 2 and 2
CHAPTER 7 Matrices Algebra: Inversion of Matrices 98
Interchanging 2
and 2
2 3
A=
3 2
Finally multiply the above matrix with the scalar matrix obtain
1 2 −3 − 2 5 3 5
− =
5 −3 2 3 5 2 5
− 2 5 3 5 2 3 1 0
3 5 2 5 3 2 = 0 1
6 4
B=
3 2
6 4
B= = ( 6 × 2 ) − ( 4 × 3) = 12 − 12 = 0
3 2
From the above operation we can see that B = 0 hence it has no inverse and is
Singular matrix
3 7
C=
2 5
CHAPTER 7 Matrices Algebra: Inversion of Matrices 99
3 7
C= = ( 3 × 5 ) − ( 7 × 2 ) = 15 − 14 = 1
2 5
Thus this is a non-singular matrix and we can obtain its inverse.
First get the reciprocal of the determinant which is on 1
Second interchange the first diagonal of 3 and 5
5 7
C= Interchanging 3
2 3 and 5
5 −7 Change signs to
C= negative
−2 3
1 5 −7 5 −7
=
1 −2 3 −2 3
Practice Problem
Find the determinant of the following and hence the inverse of the following matrices
9 3
K=
6 2
7 5
L=
4 3
CHAPTER 7 Matrices Algebra: Inversion of Matrices 100
5 5
M=
4 3
We have been dealing with square matrix that is 2× 2 now we need to consider a 3× 3 matrix.
The same concept of identity matrix applies but need to consider some technicality that applies.
Considering a matrix A which is 3 × 3 with the following elements
Since there are nine elements we can obtain nine cofactors from the matrix. We can define
cofactor as the determinant of 2× 2 which is obtained a row and a column as shown below.
To obtain the cofactor of m11 we need to delete the first row and the first column and the
multiplication of the first diagonal minus second diagonal of the remainder gives the cofactor of
m11
m 22 m 23
M11 = = ( m 22 )( m33 ) - ( m 23 )( m32 )
m32 m33
m 21 m 23
=M12 = ( m 21 )( m31 ) − ( m 23 )( m31 )
m31 m31
CHAPTER 7 Matrices Algebra: Inversion of Matrices 101
The row will remain deleted and then move to the line to the last column which is deleted
m 21 m 22
M13 = = ( m 21 )( m32 ) - ( m 22 )( m31 )
m31 m32
To get the cofactors in the second row we delete the second row and the first column.
m12 m13
M 21 = = ( m12 )( m33 ) - ( m13 )( m32 )
m32 m33
The second row remains deleted and now we need also to delete the second column.
m11 m13
M 22 = = ( m11 )( m33 ) - ( m13 )( m31 )
m31 m33
The second row is still deleted and now we need to delete the third column so as to obtain the
cofactor of M 23
CHAPTER 7 Matrices Algebra: Inversion of Matrices 102
m11 m12
M 23 = = ( m11 )( m32 ) - ( m12 )( m31 )
m31 m32
Finally we perform the same operation in the third row and delete it and delete also the first
column to obtain M 31
m12 m13
M 31 = = ( m12 )( m 23 ) - ( m13 )( m 22 )
m 22 m 23
To obtain M 32 we need to delete the third row and the second column.
m11 m13
M 32 = = ( m11 )( m 23 ) - ( m13 )( m 21 )
m 21 m 23
To obtain M 33 we need to delete the third row and the third column
m11 m12
M 33 = = ( m11 )( m 22 ) - ( m12 )( m 21 )
m 21 m 22
+ − +
− + −
+ − +
This just as we were doing in a square matrix where we were changing the signs were simply
multiply or adding a prefix of the signs below in the matrix
+ −
− +
Example 7.6
1 1 1
B = 4 1 2
5 3 4
Solution
We start by getting the cofactors of B11 by deleting the first row and column and multiply the
diagonals
1 2
B11 = =1(1) − 2 ( 3) =−
1 6 =−5
3 1
To get B12 we delete the first row and the second column
4 2
B12 = 4 (1) − 2 ( 5 ) =−
= 4 10 =
−6
5 1
B13
is obtained by deleting the first row and the third column and multiply the remainder
diagonally.
1 1 1
B = 4 1 2 Delete the first row
and third column
5 3 1
4 1
B13 = = 4 ( 3) − 1( 5 ) = 12 − 5 = 7
5 3
CHAPTER 7 Matrices Algebra: Inversion of Matrices 105
We now can move to the second row in which to obtain B21 we need to delete the second row
and first column
1 1 1
B = 4 1 2 Delete the second
row and first column
5 3 1
1 1
B21 = =1(1) − 1( 3) =1 − 3 =−2
3 1
Similarly we delete the second row and the second column to get B22
1 1 1
B = 4 1 2 Delete the second row
5 3 1 and second column
1 1
B22 = =1(1) − 1( 5 ) =−
1 5 =−4
5 1
To obtain B23 we need to delete the second row and the third column
1 1 1
B = 4 1 2 Delete the second row
5 3 1 and third column
1 1
B23 = =1( 3) − 1( 5 ) =3 − 5 =−2
5 3
Finally we move to the third row where first we need to obtain B31
1 1 1
B = 4 1 2
5 3 1 Delete the third row
and first column
CHAPTER 7 Matrices Algebra: Inversion of Matrices 106
1 1
B31 = = 1( 2 ) − 1(1) = 2 − 1 = 1
1 2
B32 is obtained by deleting the third row and the second column
1 1
B32 = =1( 2 ) − 1( 4 ) =2 − 4 =−2
4 2
B33 is the last cofactor and can be obtained by deleting the third row and column
1 1
B33 = =1(1) − 1( 4 ) =−
1 4 =−3
4 1
−5 −6 7
−2 −4 −2
1 −2 −3
+ − +
We need to place a prefix of the following signs − + −
+ − +
CHAPTER 7 Matrices Algebra: Inversion of Matrices 107
+ − + −5 −6 7 −5 6 7
− + − −2 −4 −2 = 2 −4 2
+ − + 1 −2 −3 1 2 −3
Example 7.7
2 6 3
C = −5 1 −2
7 −3 1
Solution
C11 C 12 C13
C = C21 C22 C23
C31 C32 C33
We can combine the finding the cofactors and putting the prefix of the signs
2 6 3 + − +
C = −5 1 −2 and − + −
7 −3 1 + − +
The fist sign is +
1 −2
C11 = =1(1) − ( −2 )( −3) =1 − 6 =−5
−3 1
CHAPTER 7 Matrices Algebra: Inversion of Matrices 108
−5 −2
C12 = = − 5 (1) − ( −2 ) 7 =−5 + 14 =9
7 1
−5 1
C13 = =−5 ( −3) − 1( 7 ) =15 − 7 =8
7 −3
6 3
C21 = = 6 (1) − 3 ( −3) = 6 + 9 = 15
−3 1
2 3
C22 = = 2 (1) − 3 ( 7 ) = 2 − 21 =
−19
7 1
2 6
C23 = = 2 ( −3) − 6 ( 7 ) = − 6 − 42 =−48
7 −3
6 3
C31 = = 6 ( −2 ) − 3 (1) = − 12 − 3 =−15
1 −2
2 3
C32 = =2 ( −2 ) − 3 ( −5 ) =−4 + 15 =11
−5 −2
2 6
C33 = = 2 (1) − 6 ( −5 ) = 2 + 30 =32
−5 1
−5 9 8
15 −19 −48
−15 −11 32
+ − + −5 9 8
− + − 15 −19 −48
+ − + −15 −11 32
CHAPTER 7 Matrices Algebra: Inversion of Matrices 109
−5 −9 8
= −15 −19 48
−15 11 32
Practice Problem
Find the cofactors of the following matrices
1 2 3
D = 4 5 6
7 8 9
3 −2 −3
E = 3 −3 3
4 7 −8
Example 7.8
Now that we have learned how to determine the cofactors we need to get the determinant and
the inverse of a 3 × 3 by
Taking the cofactors of the example we had previously
−5 6 7
2 −4 2
1 2 −3
Method 1
Multiply the corresponding row or column of the original matrix and the cofactor matrix
CHAPTER 7 Matrices Algebra: Inversion of Matrices 110
1 1 1 −5 6 7
The original matrix B = 4 1 2 and the cofactor matrix 2 −4 2
5 3 1 1 2 −3
When we take the first row of the original matrix, we should also take the first row of the
cofactors matrix and multiply
B =1( −5 ) + 1( 6 ) + 1( 7 ) =−5 + 6 + 7 =8
When we pick every corresponding row or column we are supposed to get the same
determinant of 8.
Let take the first column
B =1( −5 ) + 4 ( 2 ) + 1( 5 ) =−5 + 8 + 5 =8
Method 2
1 1 1
Taking the same matrix B = 4 1 2 we can use any row or column for our case let use the
5 3 1
third row.
1 1 1 1 1 1
B =5 −3 +1
1 2 4 2 4 1
Remember here we must consider the signs since we took the third row we take the signs in the
third row
CHAPTER 7 Matrices Algebra: Inversion of Matrices 111
+ − +
− + −
+ − +
B = 5 (1) − 3 ( −2 ) + 1( −3) = 5 + 6 − 3 = 8
Example 7.9
2 6 3
C = −5 1 −2
7 −3 1
Given the cofactors are
−5 −9 8
−15 −19 48
−15 11 32
Taking any row or column we are supposed to multiply with the corresponding row or column.
When we take the first row in the original matrix we should also take the first in the cofactor
matrix
7 ( 15 ) + ( 3)11 + 32 =
C =− −105 + 33 + 32 =
−40
CHAPTER 7 Matrices Algebra: Inversion of Matrices 112
3 ( 8 ) + ( −2 ) 48 + 32 =
C= 24 − 96 + 32 =
−40
Method 3
2 6 3
C = −5 1 −2
7 −3 1
Add
Example 7.10
Solution
Let first arrange it into matrix form
Det 4 ( 3) − 5 ( 3) =
12 − 15 =
−3
3 5
3 4
3 −5
−3 4
1 0 x −1 5 3 60
0 1 y = 1 −4 3 39
x ( −1× 60 ) + ( 5 3 × 39 )
y = 1× 60 + −4 3 × 39
( ) ( )
x −60 + 65
y = 60 − 52
x 5
y = 8
x=5
y=8
CHAPTER 7 Matrices Algebra: Inversion of Matrices 114
Example 7.11
x+ y+z = 6
4x + y + 2z = 12
5x + 3 y + z =14
Solution
1 1 1 x 6
4 1 2 y = 12
5 3 1 z 14
The second step is getting the inverse where we need to find the cofactor matrix
The cofactor of this matrix had already been calculated as
−5 −6 7
−2 −4 −2
1 −2 −3
When we take the cofactor and place the prefix of the signs + or – the matrix is referred as
adjugate matrix
−5 −6 7 + − +
−2 −4 −2 − + −
1 −2 −3 + − +
To get
CHAPTER 7 Matrices Algebra: Inversion of Matrices 115
−5 6 7
2 −4 2
1 2 −3
To solve for system we need to transpose the adjugate matrix. Transposing is changing rows
into columns or column into rows as seen earlier in the introduction of the matrices
−5 6 7
2 −4 2
1 2 −3
−5 2 1
6 −4 2
7 2 −3
−5 2 1 1 1 1 x −5 2 1 6
1 1
6 −4 2 4 1 2 y = 6 −4 2 12
8 8
7 2 −3 5 3 1 z 7 2 −3 14
1 0 0 x −5 2 1 6
0 1 = 1
0 y 6 −4 2 12
8
0 0 1 z 7 2 −3 14
x −5 6 7 6
y 1
8 2 −4 2 12
=
z 1 2 −3 14
CHAPTER 7 Matrices Algebra: Inversion of Matrices 116
x ( −5 × 6 ) + ( 6 × 2 ) + (1×14 )
y= 1 6 × 6 + −4 ×12 + 2 ×14
8 ( ) ( ) ( )
z ( 7 × 6 ) + ( 2 ×12 ) + ( −3 ×14 )
x −30 + 12 + 14
y= 1 36 − 48 + 28
8
z 42 + 24 + 42
x 8
y = 1 16
8
z 24
x 88 1
y = 2
=
16 8
z 24 8 3
=x 1=y 2=z 3
Example 7.12
Solution
5 −10 −5
−2 3 −4
−6 −7 −8
3 −4
A11 = = −52
−7 −8
−2 −4
A12 = = −8
−6 −8
−2 3
=A13 = 32
−6 −7
−10 −5
=A 21 = 45
−7 −8
5 −5
A 22 = = −70
−6 −8
5 −10
A 23 = = −95
−6 −7
−10 −5
=A 31 = 55
3 −4
CHAPTER 7 Matrices Algebra: Inversion of Matrices 118
5 −5
A 32 = = −30
−2 −4
5 −10
=A 33 = 5
−2 3
−52 −8 32 + − + −52 8 32
− + − =
45 −70 −95 −45 −70 95
55 −30 5 + − + 55 30 5
Let get the determinant using the first row of the original matrix and cofactor matrix
x −2500
1
y −500 −5000
=
z 5000
x −2500 −500
y =
−5000 −500
z 5000 −500
x 5
y = 10
z −10
x= 5 y = 10 z = −10
CHAPTER 7 Matrices Algebra: Inversion of Matrices 120
Practice Problem
Solve for x using matrix method
3x + 3 y + z =7
−2 x + 10 y − 5 z = 5
x − 11 y + 2 y = 12
x + 2 y + 3z = 7
2 x + 5 y + 3z =19
2 x + 6 y + 8z = 24
APPLICATION OF MATRICES
Learning Objectives
Input-output model is an application of matrix that has been successfully used to describe
mathematics model used to analyze how industries depend on each other in an economic
system. Here when we talk about the industry we are referring to the industries and consumers
or households.
Industries depend on each other by some industry using industries product as raw materials as
well as for external use by the consumers.
The output produced by the industries for consumers is called the final or external demand
Industry use each others output and we refer this as the intermediate output
Input-output analysis can be seen as the flow of industries that produce and use goods. Some of
the goods produced are used in the industry processes that are consumed internally and some
are used by the outsiders that is externally.
The input-output model most popular because it can handle large number of variables as
required to describe an economic situation.
CHAPTER 7 Matrices Algebra: Application of Matrices 122
Example 7.13
Let’s consider two industries that is industry 1 and Industry 2 and that one unit worth of output
of industry 1 requires 20% worth of industry 1 and 30% of industry 2. One unit worth of output
of industry 2 requires 60% industry 1 and 40% of industry 2
This can be presented by the figure 1.1 below
Figure 1.1
Output
Industry 1 Industry 2
Input Industry 1 0.2 0.5
Industry 2 0.3 0.4
Solution
The above information can be represented inform of a matrix A by just writing it the way it is as
given below
Technology matrix or
0.2 0.5 technical coefficient matrix
A=
0.3 0.4
The above matrix A is called the technology matrix or technical coefficient matrix
In general if we assume that 1200 units is required in industry 1 rather than one unit then we
can express the above as follows.
0.2 ×1200 =
240 Units of industry 1
0.3 ×1200 =
360 Units of industry 2
When we look at the output some has been left out for internal demand which amount to 600
units.
CHAPTER 7 Matrices Algebra: Application of Matrices 123
Again if we consider 1000 units are required in industry 2 then we can calculate the need
internal demand.
0.5 ×1000 =
500 Units of industry 1
0.4 ×1000 =
400 Units of industry 2
The remainder which is 100 units is used by the industry 2 for their internal demand.
Example 7.14
a a12
A = 11
a13 a14
Let assume that this represent the technical matrix for two industries
Solution
Then let have d1 and d 2 represent the final demand for the two industries
The final demand for the first industry can be expressed as follows
a11 + a12 + d 2
When we use x1 is the total output that meets the requirement then we express
x1 = a11 + a12 + d 2
When we have x1
x1 = a21 + a22 + d 2
CHAPTER 7 Matrices Algebra: Application of Matrices 124
When we express this in matrix notation then we can express the above as follows
x1 a11 a12 x1 d1
= x a +
2 21 a22 x2 d 2
x Ax + d
=
Where x is the total output vector and d is the final demand vector
In the introduction we noted that the input-output can be used to represent various variables
In general if we had three industries as given below with the output of x
When we have a combination of these industries it can be represented in the matrix notation as
Where i = 1, 2,3,...n
Example 7.15
Suppose we consider a two sector economy Agriculture and Transport and assume that their
production in capacity. Agriculture total production is used as below
400 units is used by Agriculture, 900 units by transport and 300 units is left for external
consumers
Transport production total output is 400 units is used by Agriculture, 300 units by transport
while 500 units is left foe external consumers
CHAPTER 7 Matrices Algebra: Application of Matrices 125
Solution
We can represent the above information into a table form
Figure 1.1
Output
Agriculture Transport Final Total
demand output
Agriculture 800 400 400 1600
Input
The technological matrix can be obtained by dividing the first column by 1600 and the second
column by 1200
0.5 0.25
A=
0.25 0.5
0.5 0.25
A=
0.25 0.5
CHAPTER 7 Matrices Algebra: Application of Matrices 126
1600
x=
1200
The internal consumption is 1100 units for Agriculture and 1000 units by Transport
If the final demand is written in matrix notation
100
d=
80
Let’s get the Leontief inverse from what we call the Leontief Model
I−A
−1
Using x= ( I − A ) d
160
= The final demand for Agriculture is 160 units and 80 units for Transport
80
CHAPTER 7 Matrices Algebra: Application of Matrices 127
Example 7.16
An economy has two sectors A and B, each unit of A requires 0.3 units of A and 0.5 units of B.
Each unit of B output require input of 0.3 units of A and 0.2 units B. Determine the level of
output that will satisfy the final demand of 780 units of A and 520 units of B
Solution
A B
A 0.3 0.5
B 0.3 0.2
Let’s calculate I − A
Det
= ( 0.7 × 0.8) − ( −0.3 × −0.2
= ) 0.5
1 0.7 −0.5
0.5 −0.3 0.8
1 286 572
=
0.5 182 364
CHAPTER 7 Matrices Algebra: Application of Matrices 128
A = 572 units
B = 364 units
Example 7.17
Figure 1.1
Output
X Y Final demand
X 400 400 200
Input
Calculate the technology matrix, assuming that total output is just sufficient to meet the total
internal consumption and final demand
Solution
x Ax + d
=
Technology matrix
400 1000 400 500
100 1000 150 500
CHAPTER 7 Matrices Algebra: Application of Matrices 129
0.4 08
A=
0.1 0.3
Example 7.18
Given that an economy of certain country consists of three sectors; Mining (M), Textiles (T) and
Chemicals (C). The input-output matrix for the economy is given by
Figure 1.2
Output
Mining Chemicals Textile
Mining 0.4 0.1 0.1
Textile 0.1 0.4 0.3
Input
Determine the amount of mining goods are consumed in the production of KES 50 million worth
of chemical goods
Determine the total input required to produce one unit of mining products
Determine the amount in shillings required to produce KES 100 millions of chemical products
Among the sectors which one consumes the greatest mining products and which consumes the
least
What is the final output given that the sectors are required to meet an external demand of KES
672 million, KES 224 million and KES 448 from the mining , textile and chemicals sector
respectively
Calculate the total internal consumption to meet the above demand
CHAPTER 7 Matrices Algebra: Application of Matrices 130
Solution
To produce one unit of the chemical goods requires 0.1 units of mining product
M C T
M 0.4 0.1 0.1
C 0.1 0.4 0.3
T 0.2 0.2 0.2
50 × 0.1 =
5 millions
0.8 ×100 =
80 millions
1 0 0
I = Is the identity matrix I = 0 1 0
0 0 1
0.4 0.1 0.1
A = Is the 3 x 3 matrix under consideration A = 0.1 0.4 0.3
0.2 0.2 0.2
0.6 −0.3
A11 =
+ 0.42
=
−0.2 0.8
−0.1 −0.3
A12 =
− 0.14
=
−0.2 0.8
−0.1 0.6
A13 =
+ 0.14
=
−0.2 −0.2
−0.1 −0.1
A 21 =
− 0.1
=
−0.2 0.8
CHAPTER 7 Matrices Algebra: Application of Matrices 132
0.6 −0.1
A 22 =
+ 0.46
=
−0.2 0.8
0.6 −0.1
A 23 =
− 0.14
=
−0.2 −0.2
−0.1 −0.1
A 31 =
+ 0.09
=
0.6 −0.3
0.6 −0.1
A 32 =
− 0.19
=
−0.1 −0.3
0.6 −0.1
A 33 =
+ 0.35
=
−0.1 0.6
The determinant can be obtained through talking any row or column with its corresponding row
and column
Let take the first row
672
d = 224
448
x = (I - A) d
−1
344.96
1
x= 282.24
0.224
282.24
344.96 0.224
x = 282.24 0.224
282.24 0.224
1540
x = 1260 That is 1540 millions in Mining, 1260 in chemicals and 1260 in textiles.
1260
CHAPTER 7 Matrices Algebra: Application of Matrices 134
However when the student is not asked for determinant there is another alternative method
which we are going evaluate
Alternative approach
We need still need to get the identity minus the matrix I − A
Given that
672
d = 224
448
(I − A) x =
d
This will yield the same results and give the following answers
=x1 1540
= x2 1260
= x3 1260
CHAPTER 6 Matrices Algebra: Application of Matrices 135
x−d =AX
Example 7.19
A manufacturing company is made of three industries namely steel rolling factory, iron melting
factory and Copper processing factory. The total output of steel, iron and copper is 500, 1000
and 1500 million shillings respectively. The final demand for steel, iron and copper is 150
million, 250 million and 400 million respectively. Out of what steel factory produces 200 million
is for its own use, 50 million is used by iron and 100 million is used by cooper processing factory.
Iron melting factory uses 200 million for its own production, 250 million by steel and 300 million
by copper. Copper processing factory uses 400 million for its own use, the rest 400 million and
300 million to steel and iron respectively. The final demand is expected to rise for steel and iron
by 50 million and for cooper to fall by 100 million, determine the new demand.
Determine the technical coefficient matrix
Given that the Leontief inverse matrix
a) Advice the manufacturing company what level each factory should produce to satisfy the
new demand.
b) Hence calculate the intermediate demand values
CHAPTER 7 Matrices Algebra: Application of Matrices 136
Solution
Let’s start by getting the technical coefficient matrix by first presenting the above data into a
table format.
Figure 1.3
Output
Steel Iron Cooper Final Total
demand output
Steel 200 50 100 150 500
Iron 200 250 300 250 1000
Input
The input of steel, iron, cooper and final demand is supposed to equal to the total output.
x1 + x2 + x3 + d1 =
x
Given that
x = (I - A) d
−1
50
∆d = 50
100
Hence
150 + 50 200
New demand = 250 + 50 =
300
400 − 100 300
354
x = 432
511
The intermediate demand at this level can be calculated as follows using the technical
CHAPTER 7 Matrices Algebra: Application of Matrices 138
coefficient matrix
354
x = 432
511
Practice Problem
1) An agricultural economy has three industries: Dairy, Beef and Crops.
To generate one shilling worth of Dairy requires KES 0.2 worth of dairy, KES 0.4 of beef and 0.3
of crops
To generated one shillings of Beef, we require KES 0.3 of dairy, KES 0.2 beef and 0.6 of crops.
To generate one shilling require KES 0.4 of dairy, KES 0.3 of beef and KES 0.1 of water.
Determine the internal consumption given that output is
400
X = 300
200
First determine the technical coefficient matrix
2) ABC estate has three interrelated industries namely Coffee processing Factory, Tea
processing factory and Sisal bags weaving factory. The total output for coffee is 540 million
shillings, tea is 600 million shillings and Sisal is 900 million shillings. The final demand for coffee,
tea and sisal products is 75, million, 15 million and 130 million respectively. Out of what coffee
processing factory produces 90 million is for its own use, 225 million is used by the sisal bags
and tea processing uses 150 million. Tea processing uses 150 million for its own respectively.
Sisal bag weaving factory sells off 270 million to coffee processing factory and 200 million to tea
processing factory. Recently, the ministry of trade and Regional Cooperation project that coffee
processing tea processing factories, final demand will rise by 25 million and 5 million
respectively while sisal weaving factory will fall by 60 million in the next one year.
CHAPTER 7 Matrices Algebra: Application of Matrices 139
3) In a relationship between steel and electricity 20% of the value of what steel produces is
consumed internally and 15% used to pay for electricity used in production. Also 35% of the
value of what the electricity industry produces is used to pay for steel consumed and 20% of it
pays for the electricity consumed internally.
Write the input- output matrix for steel and electricity
Given the production capacity of steel and electricity is shillings 90 billion and 75 billion
respectively, how much of each is consumed internally.
4) A miniature economy has three industries I1, I2 and I3, which are interdependent. Following
is s a transactions table for the industries. The figures show the value of inputs and output in sh.
Million
I1 I2 I3
5) A small economy has two strategic industries namely Agriculture and Manufacturing. To
produce KES 1.00 worth of agricultural products requires KES 0.30 of agricultural products and
CHAPTER 7 Matrices Algebra: Application of Matrices 140
KES 0.20 of manufactured products. To produce KES 1.00 worth of manufactured products
requires KEs 0.4 of agriculture produces and KES 0.10 of manufactured products.
If the gross output from the two industries is KES 800 and KES 700 million of agriculture and
manufacturing respectively what is the total internal consumption?
What is the total output required to meet a final consumer demand of KES 350 million and KES
250 million respectively?
CHAPTER 7 Matrices Algebra: Markov Process Model 140
Markov process model is a stochastic model that is time based to make predictions of various
states in the future given the current states.
Markov process can be applied in accounts receivables, marketing in determining the brand
royalty and market share analysis and in insurance policies when calculating life insurance
payouts.
Markov process as stochastic process is used to analyze decision problems in which the
occurrence over specific events depends on the occurrence of the event immediately prior to
the current event. In general the Markov process helps to identify a specific state of the system
being studied and the state transition relationship. The occurrence of an event at a specified
point in time say period (n) and put and the system in a given state say (En).
If the passage of one period or unit of time events occurs during time period n + 1 the system
has improved to state to En + 1 in the next period.
Markov process model is useful in the studying the movement of certain system over repeated
trials, which are often successful time period where the system or outcome of the system in a
given time period cannot be given certainty.
Markov process has a finite number of state none of which is absorbing in nature (state is said
to be absorbing if a customer will never switch to another state)
The states are both connectively exhausted and mutually exclusive that is exhaust the market at
100%
The probability of moving from one state to another depends only on the immediately
preceding state.
Transition probabilities are stationary that is constant for duration of the analysis
The probability has a set of initial probability which may be given or determined.
The transition probability of moving two alternative states in the next period given a state in the
time period must sum to one unit that is 100%
Example 7.20
A Criso Ltd industry manufactures two products X and Y. The marketing manager noted that the
two brands have a very stiff completion in terms of advertising and promotion. The product
manager of product X complained to the marketing manager that brand Y is taking its market
CHAPTER 7 Matrices Algebra: Markov Process Model 142
share. He requested for a research to be done on the two products and the following
information was obtained. Of those loyal to brand X in a given week, 30% remained brand loyal
in the next week whereas the rest switched to brand Y. Of those loyal to brand Y, 40% switched
to brand X while the rest remained loyal. When the research report was submitted brand X and
Y were estimated to hold 65% and 35% 0f the market share respectively.
Determine the transition probabilities matrix for the above problem
Determine the market share in the first and second week?
Determine the long-run market share
Solution
We can present the following information into a tabular form so that we can be able to obtain a
transition probability matrix as shown below.
Figure 1.1
X Y
X 30% 70%
Y 40% 60%
0.3 0.7
0.4 0.6
During the first week the market share will change like shown below
We have to multiply the transition probability matrix with the vector matrix of the research
report
0.3 0.7
[0.65 0.35] = [ 0.335 0.665]
0.4 0.6
This means that 33.5% of the buyers of product X remained loyal whereas the 66.5% switched
to product Y in the first week.
To determine the next transition in the second week we need to use the vector matrix that we
have gotten that is [ 0.335 0.665]
CHAPTER 7 Matrices Algebra: Markov Process Model 143
0.3 0.7
[0.335 0.665] = [ 0.3665 0.6335]
0.4 0.6
This means that in the second week 36.65% of the buyers remained loyal to product X and
63.35% switched to product Y.
The long-run is also called the steady state, equilibrium state, it may be referred to us the
numerous run in the transition probability remain constant or unchanged. That is this is where
no further changes occur to the market share of each company in the analysis
In the long-run it is expected that the vector matrix is
0.3 0.7
[x 1 − x] =[ x 1 − x]
0.4 0.6
0.3 x + 0.4(1 − x) =x
0.7 x + 0.6(1 − x) =1 − x
Then Y is given by 1 − x
Thus 1 − 0.363 =
0.637
X = 0.363
Y = 0.637
When the transition matrix is 100% it is said to be exhausted for instance in the following
example
CHAPTER 7 Matrices Algebra: Markov Process Model 144
x1 x2 x3
A 40% 60% 45%
B 60% 40% 55%
100% 100% 100%
Example 7.21
Three companies A, B and C are in competition and are currently holding 30%, 30% and 40% of
the total market share respectively. Company A retains 60% of its customers and loses 20% to B
and 20% to C. Company B retains 70% of its customers and loses 10% to B and 20% C. Company
retains 60% while it loses 30% to B and 10%
a) Constitute the transition probability matrix
b) Express or interpolate in terms of gains in words
c) What will each company market share be in 1 year time and 2 year time
d) Determine the market share in the long-run
Solution
The transition probability matrix will be as follows
A B C
A 60% 20% 20%
B 10% 70% 20%
C 10% 30% 60%
Thus
A B C
A 0.6 0.2 0.2
B 0.1 0.7 0.2
C 0.1 0.3 0.7
This means that company A retains 60% of the customers and loses 20% to B and 20% to C.
Secondly Company B loses 10% of its customers to company B and 20% of its customers to C
and retains 70% to itself. Finally company C retains 60% of its customers and loses 30% to
company B and 10% to company C
CHAPTER 7 Matrices Algebra: Markov Process Model 145
A B C
A 0.6 0.2 0.2
B 0.1 0.7 0.2
C 0.1 0.3 0.6
This means that Company retained 25% of its customers, company B retained 39% and company
C retained 36% in the first year.
In the second year the transition probability will change and we are going to multiply with the
new vector matrix we have gotten in above part as given below
In the second year the market share for company A is 22.5% and company B is 43.1% and
company C is 34.4%
The steady state or the long-run and in the long-run the matrix is expressed as given below
In general the steady state is given by
[x y z ][ P ] = [ x y z]
Thus in the given situation the steady state is expressed as follows considering the market share
of A, B and C is x, y and z
We can still correct the like terms together in the above equations.
Take equation (ii) and (iii) and still eliminate x by multiplying by 0.2
−0.5 y + 0.7 z =
0
−0.5 y + 0.1z =−0.2
0.6 z = 0.2
z = 0.33
Using any equation between (iv) and (v) we can solve for y, for our case let use equation (v)
x+ y+z = 1
=x ?= y 0.466 =z 0.33
x + 0.466 + 0.33 =
1
x + 0.796 = 1
x = 1 − 0.796
x = 0.204
x = 0.204
y = 0.466
z = 0.33
This means that at the long-run company A is expected to maintain 20.4%, while the rest move
to company B will maintain 46.6% and company C maintain 33%
Example 7.23
The market share of two companies A and B is 30% and 70% in the current time period. The
information obtained in terms of the customer lose and retention is given by the matrix D
0.3 0.7
D=
0.2 0.8
Determine the transition probability matrix in the 1st and 2nd month
What is the steady state of the two companies
CHAPTER 7 Matrices Algebra: Markov Process Model 148
Solution
Second month
0.3 0.7
[0.23 0.77] = [ 0.223 0.777 ]
0.2 0.8
Steady state
0.3 0.7
[ x 1 − x] = [ x 1 − x]
0.2 0.8
0.3 x + 1 − x ( 0.2 ) =x
0.7 x + 1 − x ( 0.8 ) = 1 − x
Example 7.24
Three companies X, Y, and Z are in stiff competition and the relevant managers have asked for a
market research to determine the market share. The research report indicated that company X
had retained 55% of its customers and lost 25% to company Y and 20% to company Z. Company
Y retained 60% of its customers and 30% switched to X and 10% switched to Z. Company Z
retained 90% and 5% switched to company X and rest to company Y. The companies’ current
states are 40%, 30% and 30% respectively
Solution
X Y Z
X 55% 25% 20%
Y 30% 60% 10%
Z 5% 5% 90%
Transition probability matrix
X Y Z
X 0.55 0.25 0.20
Y 0.30 0.60 0.10
Z 0.05 0.05 0.90
Market share in third year
First calculate the market share in the first year
Steady state
In general the [ x y z ][ P ] = [ x y z]
CHAPTER 7 Matrices Algebra: Markov Process Model 150
1
x+ y+z =
Take the first two equations that equation (i) and (ii) and eliminate z by subtracting both
equations
Take equation (ii) and (iii) and still eliminate z by multiplying by 0.05
CHAPTER 7 Matrices Algebra: Markov Process Model 151
Solve now equation (iv) and (v) by multiplying by 0.2 and 0.7 respectively
−0.7
= x + 0.7 y 0....................(iv) × 0.2
0.2 x − 0.45 y =−0.05.............(v) × 0.7
Eliminate x
−0.14 x + 0.14 yz =0
0.14 x − 0.315 y =−0.035
−0.175 y = −0.035
y = 0.2
Using any equation between (iv) and (v) we can solve for y, for our case let use equation (v)
x+ y+z = 1
=x 0.2= y 0.2
= z ?
0.2 + 0.2 + z =
1
z + 0.2 = 1
z = 1 − 0.4
z = 0.6
CHAPTER 7 Matrices Algebra: Markov Process Model 152
x = 0.2
y = 0.2
z = 0.6
=X 20%
= Y 20% =Z 60%
Practice Problem
1. A,B and C mobile companies are in competition and currently hold 50%, 30% and 20%
respectively of the total market share. A retains 70% of its customers, losses 20% to B
and 10% to C. B retains 80% of its customer; losses 10% to A and 10% to C. C retains 60%
of its customers; losses 105 to A and 30% to B
2. State and briefly describe areas Markov analysis is used in modern business world.
3. Small town has only three banks B1, B2, B3. The three banks have a combined client
base of 21,000 customers. Each customer has only one savings account in any one of the
banks. However customers keep shifting their accounts from one bank to another. The
table below shows the movement of customers account in the 1st month.
To
B1 B2 B3
At the start of the first month B1 had 6000 accounts, B2 had 12000 accounts and B3 had
3000 accounts.
4. There are three firms ABC, PQR and XYZ sharing a market as 40%, 40% and 20%
respectively on January 1, 2007. Over a year, the following developments took place.
ABC retains 80% of its customers, loses 16% to PQR and 4% to XYZ
PQR retains 84% of its customers, loses 12% to ABC and 4% to XYZ
XYZ retains 76% of its customers, loses 18% to ABC and 6% to PQR
Assuming that the total market size does not change,
a) What share of the market did each firm hold on January 1, 2012?
b) What would be the long-run shares of the firms at equilibrium if the buying
habits do not change?
Formula X Formula Z
Formula X 0.90 0.10
Formula Y 0.05 0.95
6. Suppose that in the above problem (5) a new toothpaste brand enters the market such
that the following transition probabilities exist:
A decision in general may be defined as the selection by the decision maker of an act considered
to be the best according to some pre-designated standard from the several available options.
Decision analysis can be determining optimal strategies when a decision maker is faced with
several alternatives and uncertainty or risks feared pattern of future. Irrespective of the type of
decision making problem they are certain elements which are common to all such problems.
Cause of action- a decision made from among a set of defined alternative causes of action
State of nature – These are consequences or events of any causes of action are dependent upon
certain factors beyond the control of the decision maker. These factors are called status of
nature.
Uncertainty – there is uncertainty regarding which event or outcome will occur. This
uncertainty is indicated in terms of probabilities assigned to events.
Pay off – each combination of course of action and events or outcome is associated with a pay-
off which measures the net benefit to the decision maker that accrues from a given combination
of decision alternatives and events. They also known as conditional profits values or conditional
profit values or conditional economic consequences.
CHAPTER 8 Decision Analysis 156
Example 8.1
A phone manufacture is in the final stages of selecting a computerized assembly plant, for its
company untested model. The company needs to determine the size of the plant that will be
economical to build and maintain. There three sizes large, medium and small. The management
believes that the model overall level of acceptance in the market will be one or two possibilities.
High acceptance ( high sales)
Low acceptance (low sales)
We should note that the selection of the best decision alternative will depend on what
management fore seen to be the best possible management acceptance of the model and
consequently the demand and resources.
Step II
Identify the possible outcomes and the state and the state of nature of events for the decision
problem. The events are beyond the control of the decision makers
S1...............high acceptance
S2 ...............Low acceptance
Step III
Determine the payoffs function which describes the consequences resulting from the
difference. Combination of the acts and events. Suppose the management has estimated the
profits from the sales of the model to be as follows
High Low
acceptance acceptance
S1 S2
Decision
alternative
d1 Large 250 -30
d 2 Medium 200 30
CHAPTER 8 Decision Analysis 157
d 3 Small 150 70
When we consider the payoff to be V then to calculate payoff we multiply the decision
alternative by the acceptance
S1 high
d1 Large
S2 Low
S1 High
d2 Medium
S2 Low
Decision node is
always a S1 High
d3 Small
square/rectangle
S2 Low
State on nature
node
Solution
S1 High 200
D1 Large
S2 Low -20
S1 High 150
D2 Medium
S2 Low 20
Decision node S1 High 100
(always represented
by a square or D3
rectangle) S2 Low 60
State of nature node
shown by a circle
This method is also called conservative it evaluates each decision in terms of, first determine the
minimum pay offs for each alternative and secondly the alternative which correspond to the
maximum of the minimum pa offs
S1 S2 Min
D1 200 −20 −20
D2 150 20 20
Maximizes the
D3 100 60 60 minimum
The minimax approach is based on the concept of regret opportunity cost or opportunity cost
and calls for selecting the cost of action that minimizes the pay offs
Step 1
Determine the amount of regret associated with each decision alternative
CHAPTER 8 Decision Analysis 159
Step 2
Construct a regret table as below
S1 S2
D1 200 − 200 60 − −20 Subtract the highest value in
D2 200 − 150 60 − 20 each column in our case it is
D3 200 − 100 60 − 60 200 in first column and 60 in
the second column
S1 S2
D1 0 80
D2 150 40
D3 100 0
Step 3
Extract the max regret associated with each decision alternative
S1 S2 Max regret
D1 0 80 80
D2 150 40 50
D3 100 0 100
Step 4
Pick a decision alternative that minimizes the max regret
S1 S2 Max regret
D2 to minimize
D1 0 80 80 the maximum
D2 150 40 50
D3 100 0 100
CHAPTER 8 Decision Analysis 160
When probability estimates for each forms of nature they are referred as expected value
approach and can be used to identify the best decision alternative.
Let n be the number of state of nature
P ( S j ) the probability of state of nature S j
Since only one of the n states of nature occurs the associated probabilities must satisfy the
following two actions;
P ( S j ) ≥ 0 for all states of nature
If you sum up the probabilities
∑ P ( S ) = P ( S ) + P ( S ) + P ( S ) + ... + P ( S ) = 1
j =1
j 1 2 3 n
n
EV ( di ) = ∑ P ( S j )V ( di S j )
j =1
Example 8.2
S1 S2
D1 200 −20
D2 150 20
D3 100 60
Let
P ( S1 ) 0.3
= P ( S2 ) 0.7
Solution
EV ( d=
1) ( 0.3 × 200 ) + ( 0.7 × −20=) 46
EV ( d2 ) = ( 0.3 × 150 ) + ( 0.7 × 20 ) = 59
EV ( d3 ) = ( 0.3 × 100 ) + ( 0.7 × 60 ) = 72
Example 8.3
Consider the payoff table below (The payoff in millions of shillings and P ( S j ) the probability of
state of nature S j occurring)
Action S1 S2 S3
D1 20 25 -10
D2 30 15 30
D3 40 0 50
P(Sj ) 0.3 0.4 0.3
Recommend the best decision alternative using
a) Optimistic approach
b) Pessimistic approach
c) Bayes (Expected Value ) approach
d) Minimax Regret approach
Solution
Optimistic approach is based on extreme optimistic this extracts the maximum payoffs for each
decision alternative and selects the maximum
CHAPTER 8 Decision Analysis 162
n
EV ( di ) = ∑ P ( S j )V ( di S j )
j =1
EV ( d=
1) ( 0.3 × 20 ) + ( 0.4 × 25) + ( 0.3 × −10=) 13
EV ( d2 ) = ( 0.3 × 30 ) + ( 0.4 × 15 ) + ( 0.3 × 30 ) = 24
EV ( d3 )= ( 0.3 × 40 ) + ( 0.4 × 0 ) + ( 0.3 × 50 )= 27
Action S1 S2 S3
D1 20 25 -10
D2 30 15 30
D3 40 0 50
Example 8.4
S1 S2
D1 200 450
D2 400 550
D3 650 350
The prior probabilities are given as P(S1) = 0.6 P(S2) = 0.4
A market research report has been offered to the company by a new research firm for which the
following probability information (conditional probabilities) is available.
Solution
a) Posterior probabilities
Sj P (S j ) P ( I1 /S1 ) P ( I1n S1 ) P ( S1 /J1 )
S1 0.6 × 0.9 = 0.54 0.54 = 0.93
0.58
S2 0.4 × 0.1 = 0.04 0.04 = 0.07
0.58
P ( I1 ) 0.58
Sj P (S j ) P ( I 2 /S1 ) P ( I 2 n S1 ) P ( S1 /J 2 )
S1 0.6 × 0.2 = 0.12 0.12 = 0.27
0.44
S2 0.4 × 0.8 = 0.32 0.32 = 0.73
0.44
P ( I 2 ) =0.44
CHAPTER 8 Decision Analysis 164
+ ( 450 × 0.07 ) =
D1 ( 200 × 0.93) 217.5
D 2 400 + ( 550 × 0.07 )
( × 0.93) = 410.5
+ ( 350 × 0.07 ) = 629
D3 ( 650 × 0.93)
D3 is the best optimal strategy because it has the highest value of 629
probabilities P ( S1 /J 2 ) 0.27
Again when using the posterior= = P ( S2 /J 2 ) 0.73
D2 is the best optimal strategy because it has the highest value of 509.5
CHAPTER 8 Decision Analysis 165
Practice Problem
1. Suppose that a decision maker faced with three decision alternatives and two states of
nature develops the following profit payoff table
S1 S2
D1 1300 1500
D2 1500 1150
D3 1400 1250
2. John bakes and sells queen cakes. The demand per week ranges between 1000 and 1500
cakes. The cakes are in packets of 100. The table below shows the probability
distribution of the cakes.
3. Suppose that a decision maker faced with four decision alternatives and four states of
nature develops the following profit payoff table:
States of Nature
S1 S2 S3 S4
Decision Alternatives D1 14 9 10 5
D2 11 10 8 7
D3 9 10 10 11
D4 8 10 11 13
If the decision maker knows nothing about the probabilities of the four states of nature,
what is the recommended decision using the approaches below
a) Laplace
b) Optimistic
c) Conservative
d) Minimax regret
CHAPTER 8 Decision Analysis 166
4. Suppose the decision maker in (I) above obtains information that enables the following
probability estimates to be made:
S1 S2
D1 100 350
D2 300 250
D3 450 450
The prior probabilities are given as P(S1) = 0.35 P(S2) = 0.65
A market research report has been offered to the company by a new research firm for
which the following probability information (conditional probabilities) is available.
6. John can bake 1000 to 1500 cakes depending on the demand. However, since the
uncertain she has to decide in advance how many cakes to bake for the coming week.
Each cake costs sh. 10 and is sold at KES 15.
a) Construct a payoff table for John.
b) Use the expected monetary value criterion to determine the optimal number of
cakes she should bake for next week.
c) Repeat part (b) above using
i. Maximax criterion
ii. Maximin criterion
iii. Minimax regret criterion
CALCULUS I:
CHAPTER 9 DIFFERENTIATION
Learning Objectives
At the end of this section the students should be able to:
dy
• Recognize the notation f'(x) and for the derivative of an equation
dx
• Find the gradient of curve using graphs and symbolically differentiate.
• Identify a tangent, secant and chord of curve.
• Getting the derivative of a function
• Differentiate power fuctions
Figure 9.0
Constant gradient
Change in y (∆y )
Change in x (∆x)
Linear equation
CHAPTER 9 Calculus I: Differentiation 168
The gradient which is also called the slope is constant through out the line whether positive
gradient like the above or a negative gradient. Taking any two points it will always give us the
same gradient. The slope is given by;
Change in y ∆y
=
Change in x ∆x
The above case is only true when dealing with the linear functions
Taking the figure 5.1 line A shows the tangent of the curve y = f ( x) .A tangent is a line the
touches a curve at a point.
Figure 9.1
y = f ( x)
Tangent A
Tangent to curve y = f ( x)
Figure 5.2 Line A is the tangent of the curve y = f ( x) . Line B and C are secant is an
approximation of a tangent and can be use to calculate the slope of a curve.
Line D and E is called a chord which is a line that join two points on a curve.
.
CHAPTER 9 Calculus I: Differentiation 169
Figure9.2
Chord
y = f ( x)
Secant C
C
Tangent A
B Secant B
A
Taking the second scenario of the curve below the gradient varies everywhere along the curve
Figure 9.3
C
Gradient variable
Tangent C
B
Tangent B
Tangent A
Non-linear equation
CHAPTER 9 Calculus I: Differentiation 170
A tangent at a particular point will be used to find the slope at that point the slope of a curve is
variable everywhere there is a tangent we have a different gradient.
Consider the curve ABC in the figure 5.3 let now consider a car moving from point A to C via B.
between A and C the slope is steadily increasing, when the car reaches point B the slope stops
increasing and remains constant.
The derived function is called the derivative of f and is denoted by the symbol f ' which is
read f prime.
The gradient function is called derivative function and denoted by the following notation
dy
read as dee y over dee x.
dx
We should note that dy / ∂x doesn’t mean dy divided by ∂x but it is a single symbol
representing derivative of y in respect to x
Solution
dy
In this we can use the or use f ( x) = x 2
dx
The graph is draw by taking the range of to be −2 ≤ x ≤ 2
Table 9.4
Figure 9.5
4
2
y=x
3
∆y =1.5
∆y =−1.5
2
∆x =−0.5 ∆x =0.5
Tangent
1
∆y =−0.5 ∆y =0.5
-1 ∆x =−0.5
∆x =0.5
-2 1 2
When the graph is plotted it appears like the above Figure 5.4 . Using the slope of the tangent
we find the derivative as follows.
−1.5
f '(−1.5) = = −3
0.5
−1.5
f '(−0.5) = = −1
0.5
f '(0) = 0
0.5
f '(0.5)
= = 1
0.5
1.5
f '(1.5)
= = 3
0.5
CHAPTER 9 Calculus I: Differentiation 172
Example 9.2
Solution
Table 9.6
Figure 9.7
3
y x2 −1
=
Tangent
Tangent at x = 1
at x = 1
-2 ∆y =1 -1 1 ∆y =1 2
∆x =1 ∆x =1
Tangent at x = 0 -1
From the Figure 5.5 the gradient at the tangent x is -1, 0, and 0.5 is given as follows. We obtain
the gradient manually.
−2
When x = −1 we obtain = −2 , similarly when x = 0 the gradient is zero at the tangent
1
1 1
x= the slope is = 1
2 1
Now when using the graph method it is very involving and thus we can use differentiation
which is the process of finding the slope of a curve at part6icular point through a tangent at the
that point.
CHAPTER 9 Calculus I: Differentiation 174
Consider the function of the form f ( x) = x n when we get the derivative of the equation we get
f '( x) = nx n −1
dy
In terms of the y = x n we introduce to obtain a derivative of the same nature with the
dx
dy
above which is as follows = nx n −1
dx
When differentiating x n we multiply the coefficient of x with the power n and simultaneously
subtract 1 from the power n to get n − 1
Figure 9.8
Coefficient of x
Power
y = 1x n
dy
= 2 × x 2−1
dx
dy
= 2= x1 2 x
dx
We can verify the result we had gotten when using the graph through this symbolic method as
follows
Taking the values of x to -1.5, -1, -0.5, 0, 0.5, 1, 1.5 then with the derivative of 2x
dy
= 2 x = (2 × −1.5) = −3 Given that x = −1.5
dx
dy
= 2 x = (2 × −1) = −2 Given that x = −1
dx
dy
= 2 x = (2 × −0.5) = −1 Given that x = −0.5
dx
CHAPTER 9 Calculus I: Differentiation 175
dy
= 2 x = (2 × 0) = 0 Given that x = 0
dx
dy
=2 x = (2 × 0.5) = 1
dx
x = 0.5
dy
= 2 x = (2 × 1) = 2
dx
x =1
dy
=2 x =(2 × 1.5) =3
dx
x = 1.5
The above results are similar to the result we got when using the graphical method.
Example 9.3
Solution
1
y = x = y = x2
1
dy 1 −1
= × x2
dx 2
CHAPTER 9 Calculus I: Differentiation 176
1
1 −
= x 2
2
1
= 1
2x 2
1
=
2 x
1
Differentiate y = 3
we can express this function in this as y = x −3
x
dy
= −3 x −3−1
dx
= −3 x −4
3
= − 4
x
dy
When differentiating y = x5 we need to in form of y = x n thus = nx n −1
dx
dy
= 5 x5−1 = 5x 4
dx
y = 4 x0
dy
= 0 × 4 x 0−1
dx
0 × 4 x −1 =
0
dy
x1−1 1x 0 Since any number raised to power zero is 1
= 1=
dx
Thus x 0 = 1
dy
=1
dx
CHAPTER 9 Calculus I: Differentiation 177
Practice Problem
(i) y = 5 x
1
(ii) y =
x
(iii) y = 1
(iv) y = x10
(v) y = 3 x
1
(vi) y = 3
x
RULES OF DIFFERENTIATION
Learning Objectives
At the end of this section the students should be able to:
• Use constant rule to differentiate a function.
• Use sum rule to differentiate a function.
• Use the difference rule to differentiate a function.
• Use a combination of sum and difference rule to differentiate a
function.
• Use product or multiplication rule to differentiate a function.
• Use quotient or division rule to differentiate a function.
• Use chain rule to differentiate a function.
1 Constant Rule
Given that y = cx n then we differentiate x n first and then multiply with c. The general formula
dy
is = nx n −1
dx
The constant rule states that we differentiate the function and multiply by the constant
Example 9.4
Differentiate
(a) y = 3x3
(b) y = 6x
(c) y = 4 8 x
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 179
Solution
(a) y = 3 x3 Using the constant rule we are supposed to differentiate x 3 then multiply with 3
dy
= 3(3
= x3−1 ) 9 x 2
dx
dy
= 6( x1=
−1
x0 6
) 6=
dx
dy 18 1 18 −1 1 −7 8
= 4=
x 4 x= x
dx 8 2
1
= 7
2x 8
Practice Problem
(a) y = 6 x 7
(b) y = 15 x
(c) y = 6 x 2
(d) y = 5 6 2x
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 180
In sum rule we differentiate each function separately and add thus given that
y = ax n + bx n + cx n
dy
Thus the in general = nax n −1 + nbx n −1 + ncx n −1
dx
Example 9.5
Differentiate
i) y = 3 x 2 + 2 x + 2
y 4 x3 + 6
ii) =
iii) y = 5 x3 + x 6 + 4 x
Solution
3x 2 Differentiate to 6x
2x Differentiate to 2
2 Differentiate to 0
dy
= 6x + 2
dx
6 Differentiate to 0
dy
= 12 x 2
dx
Separately
x 6 Differentiate to 6x 5
4x Differentiate to 4
dy
= 15 x 2 + 6 x5 + 4
dx
Practice Problem
i) y = 4 x5 + x8 + 6
a 7b 2 + b
ii)=
iii) m = 6n 4 + 3n 2 + n 6 + 7
This rule is that we differentiate separately and the subtract in general given
y = ax n − bx n − cx n we can differentiate to:
dy
= nax n −1 − nbx n −1 − ncx n −1
dx
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 182
Example 9.6
y 2x2 − x
a) =
= n6 − n2
b) m
p = 4q 2 − 3 p − 9
Solution
2x 2 Differentiate to 4x
x Differentiate to 1
dy
= 4x − 1
dx
n 6 Differentiate to 6n5
n 2 Differentiate to 2n
dy
= 6n 5 − 2n
dx
4q 2 Differentiate to 8q
3 p Differentiate to 3
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 183
Practice Problem
Differentiate
a) y = 5 x5 − 2 x 2 + 4 x
b) s= t 5 − t 2
m 4n 6 − n
c) =
1 5
d) =y 2
−3
2x 3x
A combination of the sum rule and the difference rule that we have computed in the previous
examples
Example 9.7
Differentiate
i) y = 7 x 4 + x3 − 3 x 2 + 4
ii) s =t 7 − 4t 4 + 2t
iii) y = x10 + x8 − x5 − 1
Solution
In this case we differentiate separately and add, subtract where there is positive or negative
sign respectively.
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 184
i) y = 7 x 4 + x3 − 3 x 2 + 4
dy
= 4 × 7 x 4−1 + 3 x3−1 − 2 × 3 x 2−1 + 0 × 4 x1−0
dx
= 28 x3 + 3 x 2 − 6 x + 0
= 28 x3 + 3 x 2 − 6 x
dy
= 7t 7 −1 − 4 × 4t 4−1 + 2t1−1
dx
=7t 6 − 16t 3 + 2
iii) y = x10 + x8 − x5
dy
= 10 x10−1 6 x8−1 5 x5−1
dx
= 10 x 9 + 6 x 7 − 3 x 4
Practice Problem
Differentiate
1. f '( x) = 4 x 6 + 2 x 4 − x 2 + x
2 1
2.. y = 4
2x − 2
+
x x
3. k = l 5 − 2l 3 + l 2 − 4l
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 185
When differentiate in this rule we are dealing with the product of two functions. We
Can also call this multiplication rule
The concept behind this rule is multiplying each function by the by the derivative of
the other function.
Example 9.8
Differentiate the following functions.
1). y = (3 x + 1)(8 x + 4)
2) y
= x (4 x + 3)
3) y =( x + 4)(2 x + 2)
Solution
1) y = (3 x + 1)(8 x + 4)
u 3 x + 1 and=
That is= v 8x + 4
dy dv du
We can now = u + v
dx dx dx
dy dv du
= u +v
dx dx dx
24 x + 8 + 24 x + 12
24 x + 24 x + 8 + 12
= 48 x + 20
2) y
= x (4 x + 3)
v 4 x + 3 and
We have u and v to be u = x and = u = x can be written as
1 du 1 − 1 2 dv
u=x 2
and = x also =4
dx 2 dx
dy dv du
= u +v
dx dx dx
dy 1 1 1
= ( x 2 )4 + (4 x + 6) x − 2
dx 2
1 1 1
= 4x 2
+ 2x 2
+ 3x − 2
1 3
= 6x 2
+
x
3) y =( x + 4)(2 x + 2)
dy dv du
Let=
u x + 4 and =
v 2 x + 2 then using = u + v then=
u x +4
dx dx dx
1 du 1 − 1 2
can be written as=
u x 2
+ 4 and = x v 2 x + 2 and
then given that =
dx 2
dv
=2
dx
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 187
dy dv du
= u +v
dx dx dx
dy 1 1 1
= ( x 2 + 4)2 + (2 x + 2) x − 2
dx 2
1 1 1
= 2x 2
+8+ x 2
+ x− 2
1 1
= 3x 2
+ x− 2
+8
Practice Problem
1) y =( x 2 + 2)(5 x + 4)
2) y
= 4
x (7 x + 4)
3) y =(3 x + 8)( x + 7)
du dv
dy v dx − u dx
=
dx v2
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 188
Example 9.9
2− x
(a) y =
4 + x2
2x
(b) y =
1+ x
8x − 5
(c) y =
3x 2 − 4
Solution
2− x
(a) y =
4 + x2
du dv
Differentiate u= 2 − x to = −1 and again differentiate v= 4 + x 2 to = 2x
dx dx
du dv
dy v dx − u dx
then =
dx v2
dy (4 + x 2 )(−1) − (2 − x)2 x
=
dx (4 + x 2 ) 2
−4 − x 2 − 4 x − 4 x 2
=
(4 + x 2 ) 2
−5 x 2 − 4 x − 4
=
(4 + x 2 ) 2
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 189
2x
(b) y =
1+ x
du dv
Differentiate u = 2 x to = 2 and v = 1 + x to = 1 given that
dx dx
du dv
dy v dx − u dx
= So we can differentiate
dx v2
dy (1 + x)2 + (2 x)(1)
=
dx (1 + x) 2
2 + 2x + 2x
=
(1 + x) 2
2 + 4x
=
(1 + x) 2
8x − 5
(c) y =
3x 2 − 4
du dv
v 3 x 2 − 4 we obtain
u 8 x − 5 and=
Take = = 8 and = 6 x respectively thus
dx dx
du dv
dy v dx − u dx
Using the formula =
dx v2
dy (3 x 2 − 4)8 − (8 x − 5)(6 x)
=
dx (3 x 2 − 4) 2
24 x 2 − 32 − 48 x 2 − 30 x
=
(3 x 2 − 4) 2
−24 x 2 − 30 x − 32
=
(3 x 2 − 4) 2
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 190
dy
= 2 x + 6 = 2( x + 3)
dx
y ( x + 3)8
Consider the following function =
We can expand it ( x + 3)( x + 3)( x + 3)( x + 3)( x + 3)( x + 3)( x + 3)( x + 3) . It is very
involving and laborious thus where chain rule applies.
Again given= y (4 x + 8)5 we cannot say that the derivative is 5(4 x + 8) 4
In chain rule differentiate the function that is outside the bracket and multiply
with derivative of the function inside the bracket.
In general given y is a function of u which is the function of x , we can use the
dy dy du
Formula = ×
dx du dx
Example 9.10
Differentiate
y (4 x + 8)5
1) =
2)
= y (2 x 2 + 4 x)7
10
1
3)=y x − 3
2
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 191
Solution
y (4 x + 8)5
1) =
u 4 x + 8 and
To solve the above equation we must establish = y = u 5 then
dy dy du du
using the general formula = × we can obtain = 4 and
dx du dx dx
dy
= 5u 4 Respectively then we can multiply
du
dy
When we have = 5u 4 we know that =
u 4 x + 8 then we can say that
du
dy
= 5(4 x + 8) 4
du
Thus
dy
=5(4 x + 8) 4 (4) =20(4 x + 8) 4
dx
2) =y (2 x 2 + 4 x)7
du
for the above functions are = 4x + 4
dx
dy
u 6 7(2 x 2 + 4 x)6
and = 7=
du
dy dy du
= ×
dx du dx
CHAPTER 9 Calculus I: Differentiation, Rules of differentiation 192
dy
=7(2 x 2 + 4 x)6 (4 x + 4)
dx
=(28 x + 28)(2 x 2 + 4 x)6
10
1
3)=y x − 3
2
1
In the above function=
u x − 3 and y = u10 thus the derivative are
2
9
du 1 dy 1
= and= 10
=u 9 10 x − 3 thus in general we use the
dx 2 du 2
dy dy du
following formula = ×
dx du dx
and we obtain
9 9
dy 1 1 1
= 10 x − 3 = 5 x − 3
dx 2 2 2
Practice Problem
y (5 x + 8)8
(a) =
(b) =y (6 x 2 + 3 x)10
7
1
(c) =y x − 8
4
Maximization and Minimization of Function
Learning Objectives
Stationary Points
This section is concerned with the application in which will are interested with the stationary
points. When we have a non-linear equation which have take the shape of U and inverted U at
the symmetry of the parabola we have the turning points. The turning points which are also
called the stationary point are either maxima or minima.
It is maxima when the shape is inverted U and minima when it is U shaped.
Figure 9.9
Turning point
(maxima)
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 194
Figure 9.10
Turning point
(minima)
Example 9.11
Differentiate
Solution
dy
= 2 x − 10
dx
dy
=0
dx
2 x − 10 =
0
2 x = 10
x=5
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 195
We can calculate the value of y by substituting x =5 to the equation y =x 2 − 10 x + 9
52 10 ( 5 ) + 9
y =−
y = 25 − 50 + 9
y = −16
d 2y
or f "( x )
dx 2
d 2y
=2
dx 2
When the second derivative is positive then the stationary points are at minima
To obtain the points at which it cut the x axis we solve the equation as quadratic
y =x 2 − 10 x + 9
−b ± b 2 − 4ac
x=
2a
10 ± 102 − 4 (1)( 9 )
=
2
10 ± 100 − 36
=
2
10 ± 64
=
2
10 ± 8
=
2
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 196
10 + 8 18
x
= = = 9
2 2
10 − 8 2
x= = = 1
2 2
=x 1=
or x 9
Sketching the when using the value of the x we have obtained after solving the quadratic
equation as where the graph will cut the x-axis
Figure 9.11
y =x 2 − 10 x + 9
9
5
1 9
(5, -21) minima
-16
1
To obtain the symmetry of the parabola we (1 + 9 ) =
5
2
To whether the minima remember to differentiate the second time in our case we had obtained
d2y
=2
dx 2
Example 9.12
y=− x2 + 6x + 7
Differentiate
Solution
dy
=−2 x + 6
dx
dy
=0
dx
−2 x + 6 =0
−2 x =
−6
x=3
Substitute x to obtain y
y=− x2 + 6x + 7
x=3
− ( 32 ) + 6 ( 3) + 7
y=
y =−9 + 18 + 7
y = 16
To determine whether they are maxima or minima we get the second order derivative
d 2y
=- 2
dx 2
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 198
When the second derivative is negative we say it is maxima for our case the second derivative is
negative 2 thus the stationary points are maxima
We can determine the points at which the curve cut the x –axis by solving as quadratic equation.
− x2 + 6 x + 7 =0
−b ± b 2 − 4ac
x=
2a
−6 ± 62 − 4 ( −1)( 7 )
=
2 ( −1)
−6 ± 36 − −28
=
−2
−6 ± 64
=
−2
−6 ± 8
=
−2
−6 + 8 2
x= = = −1
−2 −2
−6 − 8 −14
=x = = 7
−2 −2
−1
x= or 7
x=
Figure 9.12
16
y=− x2 + 6x + 7
-1 3
7
Application of differentiation
In most case the application of differentiation to business is inform of the differentiating total
revenue (TR) to get marginal revenue (MR)
dTR
= MR
dq
On the other hand the application is used to different ate total cost (TR) to get the marginal cost
(MC) which is shown below.
dTC
= MC
dq
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 200
Example 9.13
Company A sells its output to company B for KES 200 per unit. The Cost of the sales per week in
company A are given by the function TC =2Q2 + 40Q − 80 where Q is the value of the weekly
sales.
Company B uses the output of company A to manufacture a product whose demand is
dependent on the sale price. The revenue per week of company B is given= as R 1000Q − 16Q2
and the cost per week of company B excluding the cost of the products bought from company A
are given C =2Q2 − 120Q − 400
Company A can restrict the weekly supply of its product to company B but cannot raise the price
above KES 200. The two companies are considering whether to merge together into a single
company.
Determine:
At what weekly sales will company A maximizes it profit.
What will be the profit or loss in company B if company A were to supply a profit maximizing
quantity of its product weekly?
If the two companies were to merge into one what would be the profit maximizing output per
week and what would be the weekly profit.
Solution
TRA = PQ
TC A =2Q2 + 40Q − 80
π=
A TRA − TC A
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 201
= 160Q − 2Q2 + 80
dπ A
= 160 − 4Q
dQ
dπ A
=0
dQ
160 − 4Q =
0
−4Q =
−160
Q = 40
d 2π A
= −4
dQ2
Company A profit function is maximum because the second derivative is negative 4 at the level
of output of 40 units.
TRB = PQ
The total cost will be added the revenue of company A which is a cost to company B
π=
B TRB − TC B
Q = 40
= 6800
dπ B
= 880 − 36Q
dx
d 2π B
= −36
dx 2
The second derivative is negative thus the profit KES 6800 is maximum
When the two companies merge we add both the total cost
TC A + TC B
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 203
The total revenue to be used is that of company B because total revenue for company A is a cost
to company B
dπ A+B
= 1040 − 40Q
dQ
dπ A+B
=0
dQ
1040 − 40Q =
0
1040 = 40Q
Q = 26
d 2π A+B
= −40
dQ2
π A+B = 14000
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 204
Example 9.14
Where q is the number of calculators produced per week in ten thousands of units. The
revenue made in selling the calculators is given by the equation:
Solution
C
= 0.2q 3 – 6q 2 − 220q + 500 ( KES 00 , 000 )
q=0
= KES 50,000,000
Profit
= TR − TC
Level of output
π =
−0.2 q 3 + 5.75 q 2 +220q − 286
dπ
−0.6q 2 + 11.5q + 220
=
dq
dπ
=0
dq
dπ
−0.6q 2 + 11.5q + 220
=
dq
d 2π
−1.2q + 11.5
=
dq 2
−b ± b 2 − 4ac
q=
2a
Hence
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 206
−11.5 ± 660.25
=
−1.2
−11.5 ± 25.7
=
−1.2
−11.83
q= or 31
q=
d 2π
Thus the quantity of 31 units will give a maximum profit because the is -25.7
dq 2
π =
−0.2 q 3 + 5.75 q 2 +220q − 286
q = 31
π =
−5958.2 + 5525.75 + 6820 − 286
π = 610,155, 000
CHAPTER 9 Calculus I: Differentiation, maximization and minimization of functions 207
Practice Problem
1. A Company estimates that the total cost of producing x units of its popular product
Alpha is given by the equation: C =+2000 200x – 10x 2 + 2x 3 . The marketing
department further estimates that the revenue made in selling x units is given by:
R = 800x – 2x 2 .
Determine the number of that should be produced to maximize the total profit.
2. A manufacturer expects that the total cost (in Kenya shillings) of producing x units of his
product will be given
Consider the function that relates the dependent variable y and three different independent
variables. The process of determining the rate of change with the three variables is called
partial differential. The procedure involves differentiating y with respect to x1 when keeping x2
and x3 constant.
Example 9.15
y = x 5 + 3xz + z 2 + 100
Solution
∂y
= 5 x 4 + 3z
∂x
∂y
=0
∂x
5 x 4 + 3z =0
∂y
= 3x + 2z
∂z
∂y
=0
∂z
3x + 2z = 0
∂2 y ∂2 y
20
= x3 3
∂x 2 ∂x∂z
∂2 y ∂2 y
2= 3
∂x 2 ∂z∂x
So that to find the Hessian determinant that has got a positive we use the following
∂2 y ∂2y
∂x 2 ∂x∂z
2
∂y ∂2y
∂z∂x ∂z 2
Example 9.16
Given the TR = 5Q + A − Q2 + AQ − A2 where Q represent the total output and A advertising
expenditure. Determining the level of output at which the TR will be maximized.
Solution
TR = 5Q + A − Q2 + AQ − A2
∂TR
=5 − 2Q + A =0
∂Q
∂TR
=1 + Q − 2 A =0
∂A
TR = 5Q + A − Q2 + AQ − A2
5 − 2Q + A = 0 ⇒ 5 = 2Q − A
1 + Q − 2 A =0 ⇒ 1 =−Q + 2 A
CHAPTER 9 Calculus I: Partial Differentiation 210
5 2Q − A
=
1 =−Q + 2 A
3Q = 7
7
Q= = 2.33
3
11
A = 3.67
=
3
∂ 2TR ∂ 2TR
=
−2 1
=
∂Q2 ∂Q∂A
∂ 2TR ∂ 2TR
=
−2 1
=
∂A2 ∂A∂Q
H= ( −2 × −2 ) − (1 × 1) = 3
Example 9.17
A company produces two goods A and B and the prices are given below
P=
1 50 − x
P=
2 95 − 3y
Solution
TR1 + TR2 =
=PQ
TR1= x ( 50 − x ) + y ( 95 − 3y ) ⇒ 50 x − x 2 + 95y − y 2
π= TR − TC
= 50 x − x 2 + 95y − 3y 2 − ( x 2 + 3xy + y 2 )
= 50 x − x 2 + 95y − 3y 2 − x 2 − 3xy − y 2
= 50 x − x 2 − x 2 + 95y − 3y 2 − y 2 − 3xy
= 50 x − 2 x 2 + 95y − 4 y 2 − 3xy
π = 50 x − 2 x 2 + 95y − 4 y 2 − 3xy
∂π
= 50 − 4 x − 3y = 0
∂x
∂π
= 95 − 8y − 3x = 0
∂y
−4 x − 3y =
−54
−8y − 3x =−95
x=5
y = 10
∂ 2π ∂ 2π
=
−4 −3
=
∂x 2 ∂x∂y
∂π ∂ 2π
−8
= −3
=
∂y 2 ∂y∂z
CHAPTER 9 Calculus I: Partial Differentiation 212
∂ 2π ∂ 2π ∂ 2π ∂ 2π
H = 2 × 2 - ×
∂x ∂y ∂x∂y ∂y∂z
( −4 × −8 ) − ( −3 × −3) =23
It is maximum because the Hessian determinant is positive 23
The price can be calculated as follows
We can find the price by multiply with the value of x and y to P1 and P2
P=
1 50 − x
x=5
P1 = 50 − 5 = 45
P=
2 95 − 3y
y = 10
P=
2 95 − 30
P2 = 65
The profit can be calculated as follows
π = 50 x − 2 x 2 + 95y − 4 y 2 − 3xy
π = 50 ( 5) − 2 ( 52 ) + 95 (10 ) − 4 (102 ) − 3 ( 5)(10 )
= 600
Practice Problem
2. An non-profit making organization has started a small project whereby the aim is to
provide employment to as many people as possible without loss or profit. The weekly
total earnings of x workers can be estimated using the following equation
2
E =98 + 16 x + x 2
3
The revenue generated by the x workers
= C 100 x − 4 x 2 .
Required
CHAPTER 9 Calculus I: Partial Differentiation 213
a) Determine how many workers will generate the maximum possible revenue
b) Determine the maximum no of workers the organization will employ with making
a loss
3. A company has determined through regression analysis that its sales are in two different
medium. This is given by the following relationship
4. The total profit per acre on a wheat farm, had been found to be related to the
expenditure per acre for labor and sol conditions as given by the following function
Where x represents the expenditure per acre spent on labor and y represent the
expenditure per acre spent on soil improvement.
Determine the value of x and y that maximize profits
5. A company deals with two types of ladies wear with demand functions;
P=
x 25 − 4 x for product x
P=
y 10 − 6y for product y
Total cost function
TC =20 + 3x 2 =2y 2 =2 xy
Objective function
f ( x,y )
Subject to a constant
∅( x,y ) =
m
g ( x , y , λ )= f ( x , y ) + λ M − Q ( x , y )
∂g
=0
∂x
∂g
=0
∂y
∂g
∂λ
CHAPTER 9 Calculus I: Constrained Optimization 215
Example 9.18
x 2 − 3xy + 12 x
Subject to
2 x + 3y =6
Solution
f ( x , y ) =x 2 − 3xy + 12 x
Q ( x , y ) = 2 x + 3y = 6
g ( x , y , λ ) =x 2 − 3xy + 12 x + λ 6 − ( 2 x + 3y )
= x 2 − 3xy + 12 x + 6λ − 2 xλ − 3yλ
∂g
= 2 x − 3y − 12 − 2λ = 0..................................................... ( i )
∂x
∂g
= −3x − 3λ = 0................................................................. ( ii )
∂y
∂g
=6 − 2 x − 3y =0.............................................................. ( iii )
∂λ
2 x − 3y − 2λ 12................................................................ ( i ) × 3
−3x − 3λ 0...................................................................... ( ii ) × 2
36................................................................ ( i )
6 x − 9 y − 6λ =
0...................................................................... ( ii )
−6 x − 6λ =
36..................................................................... ( iv )
−9y − 12λ =
−3x − 3λ 0............................................................................... ( ii ) × 2
2 x + 3y 6.................................................................................. ( iii ) × 3
0............................................................................... ( ii )
−6 x − 6λ =
18.................................................................................. ( iii )
6 x + 9y =
18..................................................................................... ( v )
9 y − 6λ =
36..................................................................... ( iv )
−9y − 12λ =
18............................................................................ ( v )
9 y − 6λ =
−18λ = 54
λ = −3
36..................................................................... ( iv )
−9y − 12λ =
λ = −3
−9y − 12 ( 3) =
36
−9y + 36 =
36
−9y = 0
y=0
x = −3
CHAPTER 9 Calculus I: Constrained Optimization 217
Practice Problem
2. The total profit per acre on a wheat farm has been found to be related to the
expenditure per acre for labor and soil conditioners given the following function:
Where x represents the expenditure per acre spent on labor and y represents the
expenditure per acre spent on soil improvement
Determine the value of x and y that maximizes profit hence maximum profit
3. A producer of two goods A and B has a total cost given as where x and y denotes the
quantity of goods respectively. If P1 and P2 denotes the corresponding prices then the
demand equation are ;
Required
Determine the optimal profits if the companies total cost are fixed at KES 100
4. A company produces and sells two products A and B in related markets. The total
revenue made in selling x units of A and y units of B is given by:
Learning Objectives
At the end of this section the students should be able to:
Integrate function
Recognize the notation for indefinite integration
Find total cost given the marginal cost
Find the total revenue given marginal revenue
Integration can be regarded as the opposite process of differentiation hence called the anti
differentiation. However for the definite integral the result is single number or numeric result.
∫ (2x + 20 x )dx
4
Example 10.1
Evaluate
∫ (2x + 20 x )dx
4
Solution
∫ (2x + 20 x )dx
4
CHAPTER 10 Calculus II: Integration 219
2 x 1+1 20 x 4 +1
∫ 1 + 1 + 4 + 1 + c dx
=x 2 + 4 x 5 + c
Example 10.2
Evaluate
∫ ( 3x − 4 x )dx
2
∫ (8x − 3x 2 + 6 x − 10 )dx
3
Solution
∫ ( 3x − 4 x )dx
2
3 x 2 +1 4 x 1 +1
− +c
2+1 1+1
=x 3 + 2 x 2 + c
CHAPTER 10 Calculus II: Integration 220
∫ (8x − 3x 2 + 6 x − 10 )dx
3
8 x 3 +1 3 x 2 +1 6 x 1 +1
− + − 10 x 0 +1 + c
3+1 2+1 1+1
2 x 4 + x 3 + 3x 2 + 10 x + c
14 x 1+1 12 x 2+1
+ +c
2 3
7x2 + 4 x 3 + c
Definite Integral
In general when dealing with definite integral we just integrate just like the other normal
integration but his time with definite values.
a
The symbol for definite integral ∫ ( )dx where a is a definite and b is a lower value.
b
Example 10.3
Evaluate
4
∫ ( 3x + x )dx
2
a)
0
∫ (5x + 3 x 2 + 5 x )dx
4
b)
−2
Solution
∫ ( 3x + x )dx
2
0
CHAPTER 10 Calculus II: Integration 221
4
3 x 2+1 x1+1
∫0 3 + 2 + c dx
4
x2
∫x +
3
+c
0
2
3 42 3 02
4 + + c − 0 + + c
2 2
[64 + 8 + c ] − [0 + 0 + c ]
[72 + c ] − [0 + c ]
72 + c − c
= 72
∫ (5x + 3 x 2 + 5 x )dx
4
−2
CHAPTER 10 Calculus II: Integration 222
6
5 x 4+1 3 x 2+1 5 x1+1
∫−2 5 + 3 + 2 + c dx
6
5 5x2
∫−2
3
x + x + + c dx
2
6 5 ( 62 ) 5 ( −22 )
∫
5 3 5 3
6 + 6 + + c − −2 + −2 + + c
−2
2 2
= 8082 − −30
= 8052
When you require a numeric insert say the total revenue between two activity levels the
expression is termed as a definite integral. In the indefinite integration the result is a function of
x or any variable that is given say a, b, c, d ... .
a
The symbol for definite integral ∫ ( )dx where a is a definite and b is a lower value
b
Example 10.4
The total revenue obtained from selling x hundred items in a particular day is given by R which is
a function of variable x. The marginal revenue MR
= 20 − 4 x
Determine the total revenue function
Find the number of items sold in one day that will maximize the total revenue and evaluate TR
at that point.
CHAPTER 10 Calculus II: Integration 223
Solution
MR
= ∫ (20 − 4 x ) dx
= 20 x − 2 x 2 + c
c=0
TR 20 x − 2 x 2
=
dTR
= 20 − 4 x = 0
dx
20 − 4 x = 0
4 x = 20
x=5
dTR
= 20 − 4 x = 0
dx
20 − 4 x =0
4 x = 20
x=5
d 2TR
= −4
dx 2
TR 20 ( 5) − 2 ( 52 )
=
TR 100 − 50
=
= 50
Example 10.5
Your firm has recently stated to give economic advice to your client acting as a consultant you
have estimated the demand function to be AR = 200 − 8 x where AR is the average cost and x is
the output. AR is selling per unit. Investigation of the client cost profile the marginal cost is
given by MC =x 2 − 28 x + 211
Further investigation has shown that the firm’s cost when not producing output are 10
a) Determine the TC
b) Determine the TR
CHAPTER 10 Calculus II: Integration 224
Solution
AR x ( 200 − 8 x )
=
a).
TR 200 x − 8 x 2
=
MC =x 2 − 28 x + 211
b).
∫(x − 28 x + 211)
2
TC =
x 2+1 28 x 1+1
= − + 211x + c
2+1 1+1
1 3
x − 14 x 2 + 211x + c
3
c = 10
1 3
x − 14 x 2 + 211x + 10
3
c)Profit function
CHAPTER 10 Calculus II: Integration 225
1
200 x − 8 x 2 − x 3 − 14 x 2 + 211x + 10
3
1
200 x − 8 x 2 − x 3 + 14 x 2 − 211x − 10
3
1
200 x − 211x − −8 x 2 + 14 x 2 − x 3 − 10
3
1
−11x + 6 x 2 − x 3 − 10
3
dπ
= −11 + 12 x − x 2 = 0
dx
x =1 or 11
d 2π
= 12 − 2 x
dx 2
x = 11
12 − 2 (11) =
−10
12 − 2 (1) =
10
Practice Problem
1. The marginal revenue (MR) of a product is KES 30 and we know that total revenue is zero
when is zero, total cost equal KES 250,000
a) Find the total revenue
b) Find the total cost
c) Find the profit function
2. Evaluate;
a.
∫ (1 − 2 x + 10 x
2
b. − 12 x 4 )dx
CHAPTER 10 Calculus II: Integration 226
5
c. ∫ (200 x − 10 x
2
+ 21x 3 + 100)dx
0
3. If he marginal cost of making x pairs of gloves is shillings, find the total cost of
increasing production from 400 to 500 pairs.
AR = 20 − 5Q − Q2
4 14Q − 5Q2 + Q3
TC =+
MR
= 300 − 6Q
MC= 50 + 4Q
The fixed costs are set to 500 when the firm is not producing.
a) Find the profit function of the firm
b) Find the quantity of output that maximizes the firm’s profit hence the maximum
profit
7. Company XYZ employed a cost accountant who developed two functions to describe the
operation of the firm. He found the marginal revenue to be MR = 25 − 5x − 2 x 2 and the
marginal cost function to be MC = 15 − 2 x − x 2 where x is the level of output. Determine
the profit maximizing output of this firm and the total profit at that point.
8. The marginal revenue (MR) of a product is KES30 and we know that total revenue is zero
when x (number of units sold) is zero. The marginal cost (MC) is KES 22.50 and we are
given that when x is zero, total costs equal KES 250,000
a) Find the total revenue function
b) Find the total cost function
c) Find the profit function
CHAPTER 10 Calculus II: Integration 227
9. A company manufactures large scale items. It has been shown that the marginal cost , is
thousands of shillings where is the number of units of output per
annum. It has also been shown that the marginal revenue is thousands
of shillings.
Learning Objectives
At the end of this section the students should be able to:
−b ± b 2 − 4ac
Solve a quadratic equation using the quadratic formula x =
2a
Solve a quadratic equation by factorizing method
Sketch the graph of a quadratic equation on a graph
Determine the equilibrium price given quadratic demand equation and supply
function
Quadratic functions
In a quadratic the highest power of the independent variable is 2. Quadratic is solved by finding
the values of x that satisfy it solution or roots. The shape of the quadratic equation is called a
parabola.
This is where the curve crosses the x-axis and has two solutions
−ax 2 + bx + c =0
2
ax + bx + c =0
CHAPTER 11 Non-Linear equations 229
The curve turn round just as it touches the x-axis, it has one solution.
One
solution
The curve turns round before it ha a chance to cross the x – axis, it has no solution
Discriminant
The expressions b − 4ac which appear under the square root sign of the quadratic formula
2
determine the character of the solution and is called the discriminant. Specifically when the
value of b2 − 4ac is greater than zero then we have two solution, If the discriminant is equal to
zero we have one solution and if it is less than zero we have no solution.
Factor method
Completing the square method
Quadratic formula
Graphical method
In this level we are going to solve the quadratic equation by only two methods that is the facto
method and quadratic method
Example 11.1
Solve the following quadratic equations factor method
x 2 + 13x + 42 =
0
6 x 2 − 5x − 6 =0
Solution
x 2 + 6 x + 7 x + 42
Take the number that is before x2 called the coefficient of x2 and multiply with the constant
which the number without the variable x and x2
What we obtain is called the product
Product =1 × 42 =42
Identify two numbers when multiplied we get 42 and when we add them together we obtain 13
i.e. the coefficient before x is called the sum
x 2 + 6 x + 7 x + 42
( x + 7 )( x + 6 ) =
0
( x + 7) =
0
x +7= 0
x = −7
( x + 6) =
0
x +6= 0
x = −6
x=
−6 or −7
6 x 2 − 5x − 6 =0
CHAPTER 11 Non-Linear equations 232
Product = 6 × −6 = 36
Sum = −5
Numbers= 4, −9
6x2 + 4 x − 9x − 6 =0
2 x ( 3x + 2 ) − 3 ( 3x + 2 ) =
0
(2 x − 3)( 3x + 2 )( 3x + 2 ) =
0
(2 x − 3)( 3x + 2 ) = 0
2x − 3 =0
2x = 3
x = 1.5
3x + 2 =0
3x = −2
1
x= −
2
1
=x 1.5 or −
2
Practice Problem
Use factor method to solve the following quadratic functions
a) x 2 + 17 x + 70 =
0
b) 1 − x 2 =
0
c) 2 x 2 − 4 x + 16 =
0
d) 7 x 2 + 21x − 42 =
0
1 2
e) x + 6 x + 27 =
0
3
CHAPTER 11 Non-Linear equations 233
Example 11.2
Solve the following quadratic equation using the quadratic formula
2x2 + 9x + 5 =0
x 2 − 10 x + 9 =0
Solution
−b ± b2 − 4ac
x=
2a
ax 2 + bx + c =0
2x2 + 9x + 5 =0
When
a 2,=
= b 9 and=
c 5
x 2 − 10 x + 9 =0
CHAPTER 11 Non-Linear equations 233
x 2 − 10 x + 9 =0
−b ± b 2 − 4ac
x=
2a
− − 10 ± ( −10 ) − 4 (1)( 4 )
2
x=
2 (1)
10 ± 100 − 36
x=
2
10 ± 64
x=
2
10 ± 8
x=
2
10 + 8 18 10 − 8 2
=x = or =x =
2 2 2 2
x = 9 or 1
Practice Problem
a) 3 x 2 − 15 x + 6 =0
b) 2 x 2 − 19 x − 10 =
0
c) x 2 − 3 x + 10 = 2 x + 4
d) 4 x 2 + 12 x + 9 =0
e) x 2 + x + 1 =0
CHAPTER 11 Non-Linear equations 235
A company invests in a particular project and it is estimated that after x months of running the
cumulative profit (000’s of shillings) from the project is given by the equation
y= 31.2 x − 3x 2 − 60 where x represents the time in months. The project can run for 9 months at
the most.
Required
d) Use the graph to estimate the best time to end the project (time of maximum profits)
Solution
To determine how to draw the curve there are three steps to remember
Step 1
Determine the basic shape that is whether it has U shaped if a > 0 , inverted U shape if a < 0
Step 2
Determine the y-intercept by identifying the constant that has no variable or substitute x = 0
Step 3
31.2 x − 3x 2 − 60 =
0
−b ± b2 − 4ac
x=
2a
−31.5 ± 31.52 − 4 ( −3)( −60 )
x=
2 ( −3)
−31.5 ± 992.25 − 720
x=
−6
−31.5 ± 272.25 −31.5 ± 16.5
=x ⇒
−6 −6
x = 2.5 or 8
ii).The initial cost of the project will be given by the y-intercept on the graph or the cost when
the project is at time zero
y= 31.2 x − 3x 2 − 60
x=0
y= 31.2 ( 0 ) − 3 ( 02 ) − 60
y = −60,000
This imply the initial cost is KES 60,000
Maximu
m profit
21.1125
Profits
y= 31.2 x − 3 x 2 − 60
-60
The symmetry of the parabola will give the best time to end the project
1
(2.5 + 8 ) =
5.25 months when the project making maximum profit
2
Example 11.4
Given that the supply and demand functions
Solution
At equilibrium the supply is equal to the demand
CHAPTER 11 Non-Linear equations 238
Q2 + 14Q + 22 =
−Q2 − 10Q + 150
Q2 + Q2 + 14Q + 10Q + 22 − 150 =
0
2Q2 + 24Q − 128 =
0
−b ± b2 − 4ac
x=
2a
2
2Q + 24Q − 128 = 0
−24 ± 242 − 4 ( 2 )( −128 )
x=
2 (2)
−24 ± 576 + 1024
x=
4
−24 ± 1600
x=
4
−24 ± 40
x=
4
−24 + 40 16
x
= = = 4
4 4
x =4
−24 − 40 −64
x= = = −16
4 4
x = −16
=x 4 or − 16
To plot the graph we need to plot the to check the point of intersection of the two curves.
The equilibrium quantity is 4 units hence we can calculate the price by either using the demand
function or supply function which gives the same answer.
CHAPTER 11 Non-Linear equations 239
150
−QD2 − 10QD + 150
P=
(4, 94)
22
-16 4
Practice Problem
P = 2Q2 + 10Q + 10
−Q2 − 15Q + 52
P=
Determine the equilibrium price and quantity; hence sketch the graph on a graph paper
CHAPTER 11 Non-Linear equations 240
2. The total cost and revenue functions of producing q units of a certain product are given by
TC = 2q + 10
TR = – 2 q2 + 14q
Draw the graph of the profit function and determine the breakeven quantity q and also the
quantity that yields the maximum quantity.
π = aQ2 + bQ + c
It is known that if π =9, 34, and 19 then Q = 1, 2, and 3 respectively. Solve for the values of a, b,
and c. Hence determine the breakeven point.
4. Use Ms Excel to tabulate values of the profit function π = – 0.01q3 + 5q2 + q – 1000 for q = 0,
2, 4, 6, …, 30 and hence plot this function using Ms Excel . Use your graph to determine the
breakeven points and the maximum profit.
5.The demand and supply functions of two interdependent products are given by
Qd1 = 40 − 5 P1 − P2
Qd 2 = 50 − 2 P1 − 4 P2
Qs1 = 4 P1 − 3
Qs2 = 3P2 − 7
6. Where, Qd and Qs denote the respectively quantity demanded and supplied for each product.
Determine the equilibrium price and quantity for each product.
Qd1 = 15 − P1 + 2 P2 + P3
Qd 2 = 9 + P1 − P2 − P3
Qd 3 = 8 + 2 P1 − P2 − 4 P3
Qs1 = P1 − 7
Q s2 = 4 P2 − 4
Qs3 = 2 P3 − 5
Determine the market equilibrium price and quantity for each product.
CHAPTER 12 REVENUE, COST
AND PROFIT
Learning Objectives
At the end of this section the students should be able to:
Sketch the graph of total revenue, total cost, and average cost and
profit functions
Total revenue is the amount received by the company for the sale of its commodities or goods
or services.
Total revenue (TR) is given by price (P) by the number of units (Q)
TR = PQ
Example 12.1
It is given that where TR is the total revenue and Q is quantity of
commodity. On the graph paper plot the graph of TR against Q
Solution
Step 1- the is inverted U because the coefficient of Q2 is less than 1 thus it is -2
Step 2 – y-intercept is zero
Step 3 – Solving for the value of Q
TR 100Q − 2Q2
=
100Q − 2Q2 =
0
Q (100 − 2Q ) =
0
Q=0
100 − 2Q =
0
−2Q =
−100
Q = 50
Maximum
profit
1250
TR 100Q − 2Q2
=
25 50
Maximum Profit
CHAPTER 12 Revenue, cost and profit 243
TR 100Q − 2Q2
=
Q = 25
=TR 100 ( 25) − 2 ( 252 )
TR 2500 − 1250
=
TR = 1250
Total cost is any item that can be traced in the production or the facilitation on earning
revenue. Total cost involves two variables that are the fixed cost and the variable cost.
Total cost is given by adding the fixed cost and variable cost per unit
= FC + VC ( Q )
TC
The total cost function is a linear function such that when draw on a graph it appear a straight
line.
Variable
cost
Total Fixed
cost cost
Quantity
When we divide the total cost by the quantity then we get the average cost
TC
AC =
Q
CHAPTER 12 Revenue, cost and profit 244
= FC + VC ( Q )
TC
FC + VC ( Q )
AC =
Q
FC VC ( Q )
AC
= +
Q Q
FC
AC
= + VC
Q
P TR − TC
=
Example 12.2
Given that the fixed costs are KES 1000 and the variable cost are KES per unit express total cost
and average cost as functions of Q
Solution
TC = VC ( Q )
= FC
= 1000 + 4 ( Q )
= 1000 + 4Q
CHAPTER 12 Revenue, cost and profit 245
Example 12.3
If the fixed costs are KES 4 and variable cost per unit is KES 1 and the demand function is
P 10 − 2Q
=
Required
a) Obtain the profit function
b) Find the break even point
c) Find the Maximum profit
d) Sketch the graph
Solution
= FC + VC ( Q )
TC
= 4+Q
TR = PQ
= Q (10 − 2Q )
= 10Q − 2Q2
π= TR − TC
= 10Q − 2Q2 − ( 4 + Q )
= 10Q − 2Q2 − 4 − Q
−2Q2 + 9Q − 4
=
ii).At Break even point (BEP) profit is equal to zero or the Total Revenue is equal to Total cost
P = 0 or TC = TR
−2Q2 + 9Q − 4
P=
−2Q2 + 9Q − 4 =0
−2Q2 + 9Q − 4 = 0
Product = −2 × −4 = 8
Sum = 9
Numbers = 1,8
CHAPTER 12 Revenue, cost and profit 246
−2Q2 + Q + 8Q − 4 =0
−Q ( 2Q − 1) + 4 ( 2Q − 1) =
0
( −Q + 4 )(2Q − 1) =0
Q = 4 or 1
Maximum
profit
6.125
π=
−2Q2 + 9Q − 4
1 4
Break even
points
π =−2Q2 + 9Q − 4 =0
Q=4
π =−2 ( 42 ) + 9 ( 4 ) − 4 =0
π =−2 ( 42 ) + 9 ( 4 ) − 4 =0
−10.125 =20.25 − 4
π = 6.125
CHAPTER 12 Revenue, cost and profit 247
Practice Problem
1. A manufacturing plant has KES 8,400 in fixed costs and it uses KES1.25 to produce a single
unit of its products. The selling price has been set at KES 2.0 per unit by the laws of demand and
supply.
Required:
a) How many units must be produced in order for the operation to break even?
b) Draw a graph of both Cost and Revenue functions marking clearly the break even
point, the profit and loss regions
2. A photographer is willing to supply 280x – 500 cheap passport photographs per year at a price
of x dollars each. The public will buy 1000 – 120x such photographs at x dollars.
Required:
a) What is the equilibrium price and equilibrium demand?
b) Plot the two functions on a graph and show the equilibrium point?
3. The yearly demand for a certain style of gloves is x = 20,000 – 2000p, where p denotes the
price per pair (in dollars). The total cost of producing x pairs of gloves is
Required:
a) Formulate the Revenue and Cost functions in terms of price, p
b) Plot on the same graph the two functions and mark clearly the loss and profit regions.
Let p be on the x axis
4. Determine the price range that will earn the manufacturer profits i.e. establish break even
point by solving quadratic equations for this problem.
CHAPTER 12 Revenue, cost and profit 248
5. 20 units of a product cost KES. 200,000 and 50 units cost KES 272,000. Determine
6. For each of the following determine the linear cost equation, revenue and profit
equation and the breakeven point
.
Unit variable cost = KES 3200, fixed cost = KES 72,000 and unit price = KES 4,900
Unit variable cost = KES 7,200, fixed cost = KES 160,000 and unit price = KES 8,000
Unit variable cost = KES 8,000, fixed cost = KES 640,000 and unit price = KES 11,200
Unit variable cost = KES 4,000, fixed cost = KES 720,000 and unit price = KES 6,400
7. For each of the following P denotes the unit price and x the number of units produced
and sold of a product
Required
a) Determine the revenue function for each
b) How many units of the product should sold in order to break even
c) Sketch these graphs using excel hence estimate the number of units produced for
the firm to maximize profit
CHAPTER 12 Revenue, cost and profit 249
8. A chocolate manufacturer has fixed cost of KES 26,000 per week. The variable cost to
produce one chocolate is KES 25. If the chocolate is then sold for KES 38 per bar,
determine how many bars must be produce and sold each week to;
a) Break even
Learning Objectives
At the end of this section the students should be able to:
Example 13.1
The District Agricultural Officer of a certain District has advised farmers to apply pesticides
costing KES 2000 per acre to better their crop on the weather; this pesticide might have no
effect on their crops per acre, 10% increase in yield, or a 15% increase in yield. The probability
of each effect is shown below.
Increased Yield
Weather 0% 10% 0.5%
Dry 0.1 0.4 0.5
Normal 0.2 0.6 0.2
Wet 0.3 0.5 0.2
Based on the experience and without pesticide application, the farmer can expect the following
probabilities, yields and crops prices for the different weather conditions.
Increased Yield
Weather Probability 50kg bags per Selling price per
acre bag -KES
Dry 0.3 48 700
Normal 0.6 55 620
Wet 0.1 60 580
Use a decision tree to decide whether or not the farmers should supply the pesticide.
CHAPTER 13 Decision trees 252
Solution
The farmer has only one decision to make whether to use the pesticide or not. Thus the decision
tree for this problem has only one choice
0% 0.1 31600
15% 0.2
38020
Non pesticide 0% 0.3 33600
If the pesticide is not applied we arrive at choice node F with the following payoffs
When the pesticide is used, we must perform a similar calculation in which the yield per acre is
applied by the appropriate factor to account for the increase in yield. For example if there is dry
weather and the pesticide increase yield by 10% then the yield per acre is
Finally to obtain the payoff in dry weather when the pesticides increase yield by 10% we must
subtract the pesticides cost per acre KES 2000 from the return per acre.
We now assign numbers to the nodes using Bayes theorem and working right to left of the tree.
To chance nodes C, D, E and F we assign expected values of the values are 35654, 35,167,
35,584 and 34,020 respectively.
To chance node B we assign expected value of the numbers assigned to nodes, C, D and E
Finally we assign to choice node A the maximum of the numbers assigned to nodes B and F
which is KES 35,299. Thus the farmer maximum expected gain is 35299 per acre. He should
apply the pesticides.
Example 13.2
ANU has hired a new campus Y. They can either test the market or abandon project. The details
are set out below.
Test cost KES 5 million; likely outcome are:
Favorable 0.7
Unfavorable 0.3
If favorable they could either abandon or continue with the project. The demand is anticipated
to be:
Low P = 0.25 loss KES 10 million
Medium P = 0.6 profit KES 15 million
High P = 0.15 profit KES 45 million
If the test market indicates failure the project would be abandoned. Abandonment at any stage
results in loss of KES 3 million from rent that would have been paid.
Draw a decision tree diagram with probabilities cost and revenues incorporated appropriately
Evaluate the decision tree and recommend the action company should take
CHAPTER 13 Decision trees 254
Solution
D2 3m
Low -10m
Failure
0.25
A
Medium
Favorable Continue B 15m
Test 0.5
D1 D3
High 45m
0.15
3m
Abandon
3m
Abandon
Evaluation
( 0.25 × −10
= ) ( 0.6 × 15) + ( 0.15 × 45
= ) 13.25 million
Comparison at D1 is
ANU should test the market at cost of KES 5 million and go ahead with the favorable program if
these are favorable indicator.
Practice Problem
1. The management of AZT Company Ltd. are planning for the future needs of the
company. They are faced with three decisions either to expand the present factory, or
try to cope with demand in the present location without expanding or move to a new
location with larger facilities. If they choose to expand the factory, it will cost them KES
800,000 and moving to the larger location will cost KES 1.6 million. The following
information is available to help them make the decision.
Demand Probability
High 0.5
Medium 0.3
Low 0.2
Use a decision tree to determine the best decision the management could arrive at.
A firm has developed a new product. The firm can either test the market or abandon the
project. Testing the market would cost KES. 6 million and the test would either be
CHAPTER 13 Decision trees 256
success or failure. The probability of a success outcome is 0.7 and failure is 0.3. If the test
shows failure the company will abandon the project. Abandoning the project at any
stage would cause the company sell the patent at KES. 3.6 million. If test is successful,
the company can either abandon the project or market the product. If they market the
product with successful test results the anticipated profit is;
Demand Profit
Low – KES. 12 million
Medium KES. 18 million
High KES. 54 million
Draw a decision tree for the above and use the expected monetary value criterion to
advise the management on the best decision.
3. The Beta Company is proposing to introduce to the market a remote controlled toy car.
There are three different possible models A, B and C they models they manufacture.
However, they have the capacity of manufacturing only one of them. The probable
acceptance of any of the three models is given below.
Learning Objectives
At the end of this section the students should be able to:
Simple Interest
Given that A want to invest his KES10, 000 in bank, for five years and the bank offers a simple
interest at rate of 10%. Calculate the interest that the money earns after the end of the period.
Solution
P× r× t
I=
100
r = 10%
t = 5years
P = 10,000
10,000 × 10 × 5
I= = 5000
100
FV= P + Pr t
= P (1 + rt )
Compound Interest
For example to invest KES 10, 000 in three years at compounded interest of 10% p.a
Solution
10
Year 1 ⇒
= FV 10,000 1 + (1,1) 11000
⇒ 10,000=
100
10
Year 2 ⇒
= FV 11,000 1 + (1,1) 12100
⇒ 11,000 =
100
10
Year 3 ⇒
= FV 12100 1 + ⇒ 12,100 (=
1,1) 13310
100
To avoid doing that given that one may compound for several years we use the following
formula
FV PV (1 + r )
n
=
FV = Future value
PV = Present value
r = interest rate in %
3
10
FV = 10,000 1 + 13310
=
100
Example 14.1
What is the value of sum of KES 50,000 invested at rate of 5% compounded interest for interest
for 10 years.
CHAPTER 14 Mathematics for finance 261
Solution
FV PV (1 + r )
n
=
10
5
50,000 1 +
100
50,000 (1.05)
10
= 81,445
Investments Analysis
The most widely used method of evaluating an investment appraisal can be grouped into two
categories
Traditional method
Payback period method
Average rate of return
Discounted cash flow methods
Net present value
Internal rate of return method (IRR)
Discounted payback period
CHAPTER 14 Mathematics for finance 262
Payback period is the number of years required to recover the cash invested in a project if the
annual cash inflows are the same. The payback period can be computed by dividing the cash
invested by annual cash inflow
Example 14.2
A project requires KES 60,000 and yield inflows of KES 12000 p.a for 7 years. What is the
payback period?
Solution
Cash outlay
Pay back period =
Average net cash inflow per year
60,000
= = 5 years
12,000
Example 14.3
Y1 10,000
Y2 15,000
Y3 20,000
Y4 15,000
Y5 12,000
Y6 15,000
Y7 20,000
Calculate the payback period for the project if the initial out flow is KES 60,000 , KES, 40,000
Solution
Add the year 1, 2, 3 and 4 until you get 60,000
When the initial cash flow is 40, 000 and year until you get 40,000
10,000 + 15,000 =
25,000
Up to second year we can recover 25, 000 the remainder which is gotten from the difference of
the initial out flow
15,000 3
= 0.75 equivalent to
20,000 4
This method takes into account the time value of money. It correctly shows that cash flows
arising at different time periods differ in value and are comparable only when they are
equivalent present and are calculated as .
1
PV = FV n
1+r
Example 14.4
Solution
1
PV = FV n
1+r
10,000
= = 6209.2
(1 + 0.1)
5
Example 14.5
A businessman has two projects, A and B but can only invest in one. He has approached you for
advice and given you the cash flows for each projects as below.
CHAPTER 14 Mathematics for finance 265
a) Calculate the Net present value (NPV) of each project using a discount rate of 7% p.a.
b) Compute the internal rate of return for each project
c) Which of the two projects would you recommend
Solution
275 − 25 25 − 25
NPVA = + = 212.5
1.072 1.07
302.5 − 25
NPV
= B 250 212.5
−=
1.07
264.5 − 250 =
14.2 million
275 − 25 25 − 25
NPV=
A + − 212.5
= 0
(1 + A ) 1 + A
2
250
= = 212.5
(1 + A )
2
(1 + A )
2
1.1765
=
1+ A =
1.085
IRRA = 8.5%
CHAPTER 14 Mathematics for finance 266
IRRB = iA
302.5
NPVB
= = 250
(1 + A )
2
(1 + A )
2
1.21
=
1+ A =
1.1
IRRB = 10%
Project B is the best suitable project than project A. Since it has a higher NPV and IRR
Example 14.6
A new machine is expected to last for six years and to produce annual (year end) saving of KES
10,000. What is the maximum sum worth paying for machine now assuming compound interest
at 10% per annum?
Solution
To calculate the NPV of annuity (equal cash flows) check from the table of annuity factor for 6
years
This is how we check from the table which is always given
10%
From the real annuity table this how you trace the value
n/r 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 .9901 .9804 .9709 .9615 .9524 .9434 .9346 .9259 .9174 .9091
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908
6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553
PFVA = 4.3553
Example 14.7
A company is considering the launch of a product, for which an investment in equipment of KES
150,000 would be required. The project life would be limited to five years by the expected life of
the product. It is expected that the equipment could be sold for KES10,000 in year 6. Market has
indicated being low. Cash inflows are forecast as follows;
If the new product is now, an existing product, which could otherwise be retained for a further
five years, would be discounted immediately. If retained cash inflows of KES 12,000 p.a. would
CHAPTER 14 Mathematics for finance 268
be expressed for the existing product. The company’s discount rate is 15% p.a. (Assume that all
cash flows occur at year ends).
a) Calculate the expected Net Present value of the new product
b) Advise the company on whether to launch the new product, or to retain the existing
product
Solution
Capital investment
15%
15%
PFVA = 3.353
PV of existing product = 12,000 × 3.353 = 40,236 based on expected value there is potential
value of
56,285 − 40,236 = 16,049 From accepting the new product
Practice Problem
1. An investor projects that she will require KES. 3.0 million in 4 years’ time from now to
repay a debt. She decides to deposit KES P now into an account that pays 10% interest
p.a. compounded annually. She withdraws the money plus the accrued interest after 4
years. Determine how much she deposits into the account so that the accumulated
amount to equal the debt.
b) Find the nominal interest rat p.a. compounded quarterly that corresponds to an
effective rate 10.38% p.a.
2. Find the future value of KES 200,000 in three year’s time compounded monthly at a
rate of 18% p.a.
3. A lady decides to save KES 10,000 per year and deposits the money each year into an
account that pays interest at a rate of 10% p.a. Calculate the accumulated value after 10
years.
CHAPTER 14 Mathematics for finance 271
4. An investment requires an initial capital outlay of KES 12 million and will produce a
return of KES 25 million at the end of 5 years. Use the internal rate of return and
determine if the investment is worthwhile given that the cost of capital is 12% p.a.
5. Find the simple interest on KES 5000 invest for 3 years 2 months at 10% p.a.
Calculate the accrued amount for KES 4,500 borrowed for 90 days at 15% p.a. simple
interest.
6. A promissory note with a maturity value of KES120, 000 and a simple interest rate of
12% p.a. is sold 3 months prior to its due date. What is the present value on the day it is
sold?
7. Determine the simple discount on a promissory note of maturity KES. 300,000 due in
eight months at a discount rate of 15% p.a. What is the discounted value of the note?
What is the equivalent simple interest rate?
8. A bank’s simple discount rate is 18% p.a. If you sign a promissory note to pay KES
400,000 in six months, how much would you receive from the bank now? What is the
equivalent simple interest rate?
9. Jack borrows a sum of money from a bank and has to pay back KES.100, 000 in 9 months
time from now. The agreed interest rate is 12%p.a. How much does he receive now?
How much does he owe the bank 4 months from now? If he reschedules to repay the
debt at the end of the year, how much will he have to pay?
10. KES 20,000 is invested for 3 years at an interest rate of 14% p.a. compounded semi-
annually. Determine the accrued amount.
11. What is the present value if the compounded amount is KES 1,000,000 at 18% p.a. for 5
years and interest is calculated on quarterly basis?
12. An obligation of KES 50,000 fall due in one and a half years time. What amount will be
needed to the debt if it paid in six months?
13. Calculate the amount accrued on KES 300,000 invested at 12% p.a. for 3 years
compounded daily.
CHAPTER 14 Mathematics for finance 272
14. What is the present value of a maturity value of KES. 500,000 at 16% p.a. compounded
quarterly and invested for two and half years?
15. Suppose KES. 120,000 is invested now and gives a return of KES 136,000 in one year’s
time, calculate the internal rate of return.
16. KES 1,000,000 is invested now and gives a return of KES 800,000 in the first year and
further KES 560,000 in the second year. Determine the internal rate of return.
17. A project requires an initial investment of KES 12,000,000. It has a guaranteed return of
KES. 8 million at the end of year 1 and a return of KES. 2 million each at the end of years
2, 3, 4. Estimate the IRR. Would you recommend that someone invest in the project if
the prevailing market rate is 8% compounded annually?
18. A firm decides to invest in new machinery, which is expected to produce additional
revenue of KES. 8million at the end of each for ten years. At the end of this period the
firm plans to sell the equipment for KES. 5 million. What is the maximum amount the
firm should pay now if it not to suffer a net loss in the investment at discount rate of
6%?
19. A principal of KEs. 560,000 is invested at 9% p.a. compounded monthly for 5 years.
Determine the future value and interest after 5 years.
20. Mr. X opens a savings account for his daughter. Each month he deposits KES 4,000 into
this account. Calculate the future value of the amount after 3 years if interest is
computed at 12% p.a. compounded monthly.
21. Find the present value of an annuity with a yearly payment of KES 100,000 at an interest
rate of 9% p.a. after 10 years.
22. You have been given the opportunity to invest in any one of three projects A, B, or C.
Projects A, B, and C require an initial cash outlay of sh. 1.6 million, sh. 2.4 million and sh.
8 million respectively. The guaranteed return after 3 years is sh. 2.0 million, sh. 2.96
million and sh. 9.36 million for A, B, and C respectively. If the market rate is 5% p.a.
compounded annually, explain which one of these projects you would invest in.
23. The county of Narok has decided to engage your services as a financial consultant. The
Governor require to know which proposed investment would represent the best use if
CHAPTER 14 Mathematics for finance 273
the allocation from the National Government of KES 4,900,000 for three strategic passed
projects by the county assembly.
24. The dilemma arises because each of the three projects have an economic life of three
years and can yield a total cash inflow of KES 6,000,000. However estimates show that
the pattern of inflows, for each project differs as below.
The county has checked on a hurdle rate of 10% p.a. as the minimum discounting rate for
its projects and it is anticipating that the cash inflows will occur evenly over any given
year. The PV interest factors at 10% are as follows:
Using payback period and NPV techniques, advice the Governor on which project is most
viable.
CHAPTER 15 LINEAR PROGRAMMING
Learning Objectives
At the end of this section the students should be able to:
Introduction
There are many activities in organization which involve the allocation of resources. These
resources include labor, raw materials, machinery and money. The allocation of these resources
is sometimes called programming. Linear programming is suitable method for modeling an
allocation problem if the objective and constraints on the resources can be expressed as linear
relationships of the variables
Many practical problems involve maximizing and minimizing a function to constraints. For
example we may want to maximize a profit function subject to certain limitation.
There are many activities in organizations which involves the collection of resources machinery,
money, man, material.
The allocation of these resources is sometimes called programming. Problem arises because the
resources are usually limited or scarce supply. Linear programming is a mathematical
techniques concerned with allocation of scarce resources.
The objective is to determine the most efficient method of allocating these resources to
valuable so that some measures of performance is optimized.
Linear programming can be used to solve problem that satisfies the following.
Problem must be capable of being stated in numerical terms.
All factors involved in the problem must have linear relationships
The problem must per5mit choice of choices between alternative causes of action
There must be one or more restrictions on the factors involved for example a fertilizer must
contain a minimum of 155 potassium, 15% phosphate and 30% nitrogen.
CHAPTER 15 Linear programming 275
Example 15.1
A launcher make two blend of animals feeds that is daily meal and Maize jam by mixing three
inputs coded x, y and z and the weekly cost and availability of the input are as below.
% of each inputs
x y z
Daily meal 25 55 20
Maize jam 40 20 40
There is a requirement that the launcher must produce 50,000 kg of each blend.
Given that the cost of making each unit of dairy meal and maize jam is KES 100, KES 120
CHAPTER 15 Linear programming 276
respectively.
Formulate the above problem as linear programming problem if the objective function of the
launcher is to make blend of the least possible cost.
Solution
Constrains
The launcher must produce at least 50,000 of p and q inputs
p ≥ 50000
q ≥ 50000
The value of x, y and z is given as
x = 25000
y = 50000
z = 75000
We can form the following equation
0.25 p + 0.4q = 25000
0.55 p + 0.2q = 50000
0.2 p + 0.4q = 75000
Example 15.2
Linear program
Minimize cost C 100 p + 120q
=
Subject to:
CHAPTER 15 Linear programming 277
Example 15.3
A family bakery produces two types of cakes Black forest and banana bread. The bakery can sell
all that it bakes but production is limited by the supply of major ingredients and by the amount
of oven capacity available.
The production of one cake black forest requires 0.04 hours of oven time while as the
production of banana bread requires 0.08 hours of oven time.
0.02 kilogram of special ingredients is required for one black forest cake and 0.08 kg is required
for one banana bread cake.
Each day the bakery has 21 oven hours available and 160 kilograms of the special ingredients
The contribution is KES 200 for the black forest cake and KES 300 for the banana bread cake.
How much of each should be baked if the bakery wishes to maximize the daily production.
Solution
Let the black forest cake be x
Let the banana bread cake be y
Constraints
0.04 x + 0.08 y ≤ 24
0.02 x + 0.08 y ≤ 160
Linear program
Maximizing profit
Subject to:
CHAPTER 15 Linear programming 278
A firm produces two types cooking fat supper and premier. The raw material to make super cost
KES 20 per kilogram and to make premier cost KES 30 per kilogram.
The raw materials pass through three machines processors. The time taken in each processor is
as given below in minutes.
The three processor are available for a maximum of twelve hours a day. The contribution is KES
45, 50 for supper and premier respectively.
Required
Define the decision valuables and the constraints for the above problem.
Formulate the problem as a linear programming model given the objective of the firm is to
maximize profit.
Solve the above problem graphically and hence indicate the optimal solution and the optimal
objective value.
Solution
Objective function
=π 45 x + 50 y
The time constraints are,
Machine processor 1
Machine processor 2
Machine processor 3
The equation of constraints are given as below
CHAPTER 15 Linear programming 279
Linear program
Objective:= π 45 x + 50 y
Subject to:
To draw the linear program on graph we need to get specific points which we are going to use
We calculate the points as follows
4x + 6 y =
720 with the value of x = 0 then we can get the value of y as follows
4x + 6 y =720
x=0
6 y = 720
y = 120
4x + 6 y =
720
4 x = 720
x = 180
A(0, 72)
B(90, 0)
C (0, 0)
Use the points to substitute the objective function to see what will give the highest value since
our objective is to maximize profit and we need the highest profit values
90 kg of supper fat
0kg of premier fat
CHAPTER 15 Linear programming 281
Example 15.5
Using the linear program in example 1 we can solve the problem graphically as follows.
Minimize cost = C 100 p + 120q
Subject to:
Solution
Solving the linear program graphically it will appear like the figure below.
CHAPTER 15 Linear programming 282
C 100 p + 120q
=
Thus
Objective function- it is the maximizing profit and revenue or minimizing function of costs
Constraints – Are the resources that are limited but necessary to maximize or minimize an
objective function.
The basic procedure is the same for formulation of all linear programmes:
CHAPTER 15 Linear programming 283
Step 1
Identify the variables in the problem for which the values can be chosen, within the limits of the
constraints
Step 2
Identify the objective and the constraints on the allocation
Step 3
Write down the objective in terms of the variables
Step 4
Write down the constraints in terms in terms of the variables
University administration is planning a team building trip for its staff. Two types of buses are
available. Type A can carry people and 1000 kg of baggage and costs KES 20,000. Type B carry 50
people and 750 kg of baggage and costs KES 24,000. A total of 800 people are going on trip, and
they have 18,000 of baggage.
Form a linear program for above information
How many of each type bus should be chartered to minimize the cost of the trip.
Solution
To solve the above linear programming we say that;
Let the number of type A of bus be x
Let the number of type B of bus be y
40 x + 50y ≥ 800
Subject to
1000 x + 750y ≥ 18000
Remember we don’t need the negative part thus we always introduce the non-negativity
function
CHAPTER 15 Linear programming 284
To plot the points we need to get two points in every line that is find the value of y when x is
zero and x when y is zero and use the points to plot the graph
40 x + 50y ≥ 800
x y
0 16
40 0
For the second line then get the value of x when y is equal to zero and similarly get the value of
y when x is equated to zero
x y
0 24
18 0
24 B
Feasible
15 A Region
C
4 18 40
40 x + 50y ≥ 800
1000 x + 750y ≥ 18000
CHAPTER 15 Linear programming 285
The boundary and interior of ABC is called the feasible region, feasible production set,
production possibility set or opportunity set
The solution lies on the vertexes where the lines are cut each other but must within the feasible
region
20,000 x + 24,000y
20,000 (15) + 24,000 ( 4 ) =
396,000
20,000 ( 0 ) + 24,000 ( 24 ) =
800,000
20,000 ( 40 ) + 24,000 ( 0 ) =
960,000
We should take the least because we are trying to minimize cost that is hire 15 buses of type A
and 4 buses of type B
Example 15.7
A gem dealer buys rough – cut amethysts and beryls of uniform size, which she finishes for sale
retail jewelers. Each amethyst requires one hour on a grinder, one hour on a sander and two
hours on a polisher and yields a net profit of KES 7500. Each beryl requires two hours on a
grinder, five hours on a sander and two hours on a polisher and yields a profit of KES 10,000.
The grinder, sander and polisher are available for a maximum of 40 hours a week.
Formulate the above as a linear programming problem
By use of suitable scale solve the linear programming problem by graphical method and
establish the optimal mix
The gem dealer wants to introduce a new gem and wants to know which machine has idle
capacity. Evaluate the resource utilization
Solution
Maximize = 7500x+10000y
Subject to:
Grinder: x +2y ≤ 40....................................................... ( i )
Sander: x + 5y ≤ 40....................................................... ( ii )
Polisher: 2x + 2y ≤ 40.................................................... ( iii )
for x ≥0 and y ≥ 0
x y
0 8
40 0
x y
0 20
20 0
CHAPTER 15 Linear programming 287
x + 5y ≤ 40
Feasible Region
2x + 2y ≤ 40 x + 2 y ≤ 40
From the above we find that the solution is 15 Amethyst and 5 Beryls
Example 15.7
K ltd produces two products x and y. X has a contribution of KES 3 per unit and y has a
contribution of KES per unit. The manufacturer wishes to establish the weekly production plan
which maximizes contribution.
Because of trade agreements, sales of x are limited to weekly maximum of 20 units and to
honor an agreement with an old established customer at least 1o units of y must be sold per
week.
Formulate a linear programming model that could be used to determine the production
quantities of each product so as to maximize profit
Solution
Objective function; 3x + 4 y
Subject to constraints
Practice Problem
1. A firm makes two products Alpha and Beta both which require two raw materials RM1
and RM2. Each of the product, Alpha requires 2kg of RM1 and 3.5 kg of RM2. Each
kilogram of product beta requires 3kg of RM1 and 1.5 kg of RM2. Each week 100kg of
RM1 and 120kg of RM2 are available. There is an unlimited supply of labor and machine
time the firm can sell all its production. The unit profit on Alpha and beta is KES 50 and
KES 80 respectively
a) Set up a profit maximizing linear programming model for the problem
c) Find the optimum solution for the profit maximizing model graphically
2. A manufacturer who produces two products A and B has formulated the following linear
programming problem.
CHAPTER 15 Linear programming 289
Subject to:
x + 2y ≤ 50
3x + 2y ≤ 180
x ≥ 10
y ≤ 20
x ≥ 0, y ≥ 0.
Solve the problem graphically stating the optimal solution and profit.
3. A Company manufactures two types of toys T1 and T2. Each toy is processed through
three machines A, B and C. Each T1 toy requires 4 hours of machine A, 2 hours of
machine B and 1 hour of machine C. A unit of T2 requires 2 hours on machine A, 2 hours
on machine B and 3 hours of machine C. EachT1 toy contributes KES 50 to profit and
each unit of T2 contributes KES 30 to profit. There are a maximum of 80 hours available
for machine A, a maximum of 50 hours available on machine B and 40 hours available on
machine C.
Formulate and solve the linear programming problem using the graphical method.
4. A mail order firm has to transport 900 parcels using a lorry, which can carry 150 parcels
at a time, and a van that can carry 80 parcels at a time. The cost each trip of a lorry is
KES. 500 and KES. 400 for the van. The total transportation cost must not exceed KES.
4,400 and the lorry make fewer trips than the van. Each lorry trip makes a profit of KES.
200 and a van trip KES. 100. Write down the relevant inequalities and determine the
best combination of trips for the lorry and the van that would yield maximum profit.
5. A shop stocks two types of detergents A and B. The shop can sell at least 3 times as many
units of A as of B but there room to store 32 units of both. Each unit of A sold yields a
profit of sh. 20 and each unit of B sh. 50. Write down the linear inequalities involved. By
graphing the inequalities, determine the number of units of each type required making
maximum profit.
CHAPTER 15 Linear programming 290
6. A Company produces two products A and B. Each unit of product A gives a profit
contribution of KES 60 and each unit of product B yields a profit of KES 50. Each unit of
product A requires 3 hours of polishing and 2 hours of plating. Each unit of product B
requires 4 hours of polishing and one hour of plating. There are 120 hours of polishing
available per week and 40 hours of plating available per week. Formulate and solve the
linear programming problem.
(viii) x ≥ 2; y ≥ 1; x + y ≤ 7; y – x > 0
9. A Company produces two products X and Y. The plant capacity constrains the output of
X to a maximum of 50 units per day and that of Y to a maximum of 70 units per day. It
takes 4.8 minutes to manufacture a unit of X and 8 minutes to manufacture a unit of Y.
Each day has a maximum of 8 hours of production time. The profit per unit of X is KES. 80
and KES. 100 per unit of Y. Formulate and solve the linear programming problem.
10. S K ltd has received a special order from the ministry of special programme for high
quality protein biscuits for famine relief. S ltd must minimize costs and ensure that the
mix meets the minimum nutritional requirement set by the ministry of public health.
The LPO requires 1, 000 kgs of biscuit mix which is made of four ingredients, R, S,T, U
CHAPTER 15 Linear programming 291
that cost KES 8, KES 2, KES 3, and KES 1 per kilogram respectively. According to national
nutritional guidelines by the ministry of public health the batch must contain a minimum
of 400kgs of protein, 250 kgs of fat, 300 kgs of carbohydrates and 50 kgs of sugar.
12. ANU is about to buy some publishing machines to enable it print it newly designed
distance learning packs and a choice of Type X or Type Y machine. The university has
budgeted KES 160,000 for the purchase of the machines. Type X machine costs KES 5, 00
each, Type Y machine costs KES. KES 10, 000 each require 10 hours of maintenance a
week and can produce 2,000 distance learning packs per week.
13. Use the graphical method to solve linear programming problems formulated below.
(i) Minimize: Cost, C = 30x + 20y (ii) maximize: Profit, P = 60x + 20y
2x + 4y ≥ 10 4x + y ≤ 5
4x + 2y ≥ 10 and y ≥ 4, x ≥0 3x + 2y ≤ 7
x + y ≤ 3 and x, y ≥ 0
14. Each machine, X or Y needs 50 square meters of floor area. The available 1,000 square
meters of floor area and 400 hours of maintenance time each week. There is
overwhelming response to the distance learning mode and all distance learning packs
produced can be sold. The university management wishes to minimize output.
a) List objective function and constraints
b) Graph the constraints shading the feasible region
c) State the optimal mix of publishing machine to but with reasons
CHAPTER 15 Linear programming 292
It has been decided that the fertilizer will be sold in bags containing minimum of 50kg
It must contain at least 15% nitrogen
It must contain at least 8% phosphate
It must contain at least 25% bone meal
The manufacturer wishes to meet the above requirement at the minimum cost possible-
16
INTRODUCTION TO
CHAPTER QUANTITATIVE TECHNIQUES
Learning Objectives
At the end of this section the students should be able to:
Quantitative techniques is the approach of modern science on complex problems arising in the
management of four Ms (man, machinery, money, in the large organization and also
government ministries and department.
It’s policy is to help management determine its policy and action scientifically.
2) Model building
A model building is any representation of reality and may be in graphical physical or
mathematical terms. It tries to show the working of the real world by means of simulators,
mathematical symbol, equations formula graphs.
A model can be classified into:
a) Normative model
Are concerned with finding the best optimum of ideal solution to a problem.
b) Descriptive model
This model describe the behavior of a system without attempting to find the best
solution to any problem. Example is simulation.
CHAPTER 16 Introduction to quantitative techniques 294
3) Data collection
Correct the relevant data in order to solve problem. Data collected is from revenue cost
production, quantity the uncertainty risk involved.
4) Problem solving
This involves the manipulation of the acquired data using standard mathematical means and
using recognized quantitative techniques where a large amount of data is used use of computer
is necessity.
Example of Model
Mathematical Model
This are frequently used in management and particular in quantitative.
Iconic Model
This is visual model of the real object they represent. They may be larger or smaller the reality
Analagol Model
Use one self of physical movement or properties present another set
Simulation Model
Represent the behavior of a real system for example learning how to drive you use a table.
Heulistic Model
Use a set of intuitive rules which management hope will produce a worker able solution to a
better solution methods currently be used e.g. in programming where you set boundaries
17
LINEAR PROGRAMMING:
CHAPTER SIMPLEX METHOD
Learning Objectives
At the end of this section the students should be able to:
Simplex alogarithim is the most efficient method of solving linear programming. It is mostly
used where a linear program has more than two variables. The alogarithim use in built matrix
procedure as used in solving system of simultaneous equation. It is such method that seeks the
optimal solution using a matrix method.
Definition of Terms
Slack variable
Prior to solving linear problem using the simplex method the constraints variable must be
standardized .for the constraints of the form ≤ (less than) a value added to ensure equality. The
variable are called slack variable and they have a zero contribution towards the profit in
objective function.
Surplus variable
These are constraints of the form ≥ (greater than) a value is subtracted to ensure equality are
called surplus variable
Standardization
CHAPTER 16 Linear programming simplex method 296
The above subtraction and addition is called standardization. Standardization process should
not lead to the violation of non negativity requirement for all the variables.
Feasible Region
A an area that satisfies all the problem’s constraints that the area with the possible solutions
Feasible Solution
A point in the feasible or wanted region that satisfies all of the problem’s constraints.
Example 17.1
A steel structure produces two types of metal namely M 1 and M 2 subject constraints on three
raw materials a, b and c
The objective of the firm is to select a product mix which will maximize profit.
Linear program for the problem is
Produce x units of product M 1 per week and y units of M 2 per week
Maximize = p 2 x + y ( sh / week )
Subject to :
A : 3 x ≤ 27 kg
B : 2 y ≤ 30kg
C : x + y ≤ 20kg
x ≥ 0, y ≥ 0
Using the simplex method determine the product mix and maximum value of the weekly profit.
Solution
Arrange the coefficient in the left hand side of the constraints equation in matrix format
Put the right-hand side of the constraints in separate column on the right of the variable
Label the row with the names of the variable which are basic that is the slack variable or the
surplus variable
Add the objective functions as an additional row to the table.
Find the lowest negative value in the objective function ( in our case it is -2 in the tableau 1.
Divide the right-hand side values (b column) by the corresponding number in the pivot column.
Choose the smallest positive ratio (in our case above) . The corresponding row is called pivotal
row. The intersection of pivotal row and pivotal column is the pivotal elements (in case 3)
Divide all the elements in the pivotal row by pivotal elements and replace the pivotal row by this
new row. Also replace the variable by the label from the pivotal column.
Tableau 3
Basic
Variables x y S1 S2 S3 b
R1 S1 1 0 1 0 0 9
3
R2 S2 0 2 0 1 0 30
R3 S3 1 1 0 0 1 20
R4 Z -2 -1 0 0 0 0
Using the arithmetic operation on the row reduce all the elements in pivot column to zero
This arithmetic operation must use only the pivot row as the bases.
CHAPTER 16 Linear programming simplex method 298
Tableau 4
Basic
Variables x y S1 S2 S3 b
R1 S1 1 0 1 0 0 9
3
R2 S2 0 2 0 1 0 30 R=
5 R3 − R1
R3
S3 0 1 −1 0 1 20
3
R4
Z -2 -1 0 0 0 0
Tableau 6
Basic
Variables x y S1 S2 S3 b
R1 x 1 0 1 0 0 9
3
R2 2
S2 0 0 1 -2 8
R5 3
y 0 1 −1 0 0 11
3
R=
7 R5 + R6
R6 2
Z 0 -1 0 0 18
3
CHAPTER 16 Linear programming simplex method 299
Tableau 7
Basic
Variables x y S1 S2 S3 b
R1 x 1 0 1 0 0 9
3
R2 2
S2 0 0 1 -2 8
R5 3
y 0 1 −1 0 0 11
3
R7 1
Z 0 0 0 1 29
3
Shadow prices
x=9
y = 11
Example 17.2
Subject to:
Solution
Basic
Variables x y z S1 S2 S3 S4 b
R1 S1 2 3 1 1 0 0 0 400
R2 S2 1 0 1 0 1 0 0 150 R=
6 R1 − R3
R3 S3 1 0 1 0 0 1 0 50 R= R2 − R3
2 4 7
R4 S4 0 1 0 0 0 0 1 50
R10= R5 + 10 R3
R5 Z -8 -5 -10 0 0 0 0 0
R1 2 3 1 1 0 0 0 400
R3 1 0 1 0 0 1 0 50
2 4
R6 11 3 0 1 0 −1 0 350
2 4
R=
7 R2 − R3
R3 1 0 1 0 0 1 0 50
2 4
R2 1 0 1 0 1 0 0 150
R7 1 0 0 0 1 −1 0 100
2 4
R10= R5 + 10 R3
CHAPTER 16 Linear programming simplex method 302
R5 -8 -5 -10 0 0 0 0 0
10R3 5 0 10 0 0 0 21 500
2
R10 -3 -5 0 0 0 21 0 500
2
After performing the above with R3 changing to R8 and R4 changes to R9 form the table below.
We need to perform a similar operation that were done in Tableau 1 to the above Tableau 2
In the above where there is zero there are no operations to be made in the pivot column.
Tableau 2
Basic
Variables x y z S1 S2 S3 S4 b
R6 S1 11 3 0 1 0 −1 0 350
2 4
R7 S2 1 0 0 0 1 −1 0 100 = R6 − 3R9
R11
2 4
R8 S3 1 0 1 0 0 1 0 50
2 4
R9 S4 0 1 0 0 0 0 1 50
R=
15 R10 + 5 R9
R10 Z -3 -5 0 0 0 21 0 500
2
R6 11 3 0 1 0 −1 0 350
2 4
3R9 0 3 0 0 0 0 3 150
R11 11 0 0 1 0 −1 -3 200
2 4
R=
15 R10 + 5 R9
R10 -3 -5 0 0 0 21 0 500
2
5R9 0 5 0 0 0 0 5 250
R15 -3 0 0 0 0 21 5 750
2
We can now put together the above column two R11 and R15 into the tableau 4 below.
Tableau 3
Basic
Variables x y z S1 S2 S3 S4 b
R11 S1 11 0 0 1 0 −1 -3 200
2 4
R12 S2 1 0 0 0 1 −1 0 100
2 4
R13 z 1 0 1 0 0 1 0 50
2 4
R14 y 0 1 0 0 0 0 1 50
R15 Z -3 0 0 0 0 21 5 750
2
We still have a negative in R15 and for the equation reach optimum we need to eliminate all
the negative since we have -3
CHAPTER 16 Linear programming simplex method 304
R13 z (1 0 1 0 0 1 0 50) ÷ 1
2 4 2
R18 x 1 0 1 0 0 1 0 100
2 2
When we replace R13 with R18 we are going to use that as our base to reduce the other
elements in the pivotal column to zero that is row R11 , R12 , and R15 . In R14 the element is
already zero so it is going to be transferred just the way it is.
Basic
Variables x y z S1 S2 S3 S4 b
R11 S1 11 0 0 1 0 −1 -3 200
2 4
R12 S2 1 0 0 0 1 −1 0 100 R= R11 − 1 1 R18
2 4 16 2
R18 x 1 0 1 0 0 1 0 100 R= R12 − 1 R
2 2 17 2 18
R14 y 0 1 0 0 0 0 1 50
R=
20 R15 + 3R18
R15 Z -3 0 0 0 0 21 5 750
2
First, R11 Will be replaced with R16 by subtracting 1 1 R18 from R11 as follows.
2
CHAPTER 16 Linear programming simplex method 305
R= R11 − 1 1 R18
16 2
R11 11 0 0 1 0 −1 -3 200
2 4
1 1 R18 11 0 3 0 0 3 0 150
2 2 4 4
R16 0 0 −3 1 -1 −3 3 50
4 4
R17 0 0 −1 0 1 −1 0 50
4 2
Final operation is changing R15 to R20 by adding R15 to 3R18 as given below.
R=
20 R15 + 3R18
R15 -3 0 0 0 0 21 5 750
2
3R18 3 0 3 0 0 3 0 300
2 2
R20 0 0 3 0 0 4 5 1050
2
We can now take R16 , R17 and R20 put them together to create a new tableau 4 as given below
Tableau 4
Basic
Variables x y z S1 S2 S3 S4 b
R16 S1 0 0 −3 1 -1 −3 3 50
4 4
R17 S2 0 0 −1 0 1 −1 0 50
4 2
R18 x 1 0 1 0 0 1 0 100
2 2
CHAPTER 16 Linear programming simplex method 306
R19 y 0 1 0 0 0 0 1 50
R20 Z 0 0 3 0 0 4 5 1050
2
Interpretation
Example 17.3
Slack variables
S1 = 50 It means that 50 machine hours are unused at optimum
S 2 = 50 It means that 50 components are unused at optimum
Shadow Prices
1. Practice Problem
1. Duba Paints Company is specializing in the production of industrial varnish. The selling
prices and the associated unit variable costs for high gloss varnish and matt varnish are
shown in the table below.
Each gallon of matt varnish requires 6 minutes of skilled labor and each gallon of high
gloss requires 12 minutes of skilled labor. In a given day there are 400 man haws of
CHAPTER 16 Linear programming simplex method 307
skilled labor available. Also there are 100 ounces of an important blending chemical
available each day, where each gallon of matt varnish needs 0.05 ounces of blending
chemical and each gallon of high gloss varnish needs 0.02 ounces of the chemical. The
processing capacity at the plant is limited to 3000 gallons of varnish per day.
The company is committed to supplying a leading retailer with 5000 gallons of matt
varnish and 2500 gallons of high gloss varnish each working week (consisting of five
days). In addition, there is an agreement with the unions that at least 2000 gallons are
produced each day. Dura Coat management would like to determine the daily
production volume of each of the two varnishes that will maximize total contribution.
a) Develop a linear model of the production problem facing Dura Coat paint.
b) Using a graphical approach determine the optimum daily production plan and the
consequent contribution.
2. A farm co-operative has 600 acre available to plant corn and soybeans. Each acre of corn
requires 9 gallons of fertilizer and hour of labor to harvest. Each acre of soybeans
require 3 gallons of fertilizer and I hour to harvest. The farm has available at most 40,500
gallons of fertilizer and at most 5250 of labor for harvesting. If the profits per acre are
KES 60 thousand for corn and KES 40 thousand for soybeans:
c) What will happen it 1000 gallons of fertilizer are added to the system.
3. Ken Ltd produce three kinds of malted drink. One of these they sell as a health drink
because it has less sugar; one they sell to hospitals as an invalid food as it has added
vitamins; the third one is a standard product.
The main ingredients, with their costs and normal weekly availabilities, are given in the
table below, as are the estimated maximum weekly demands for the three products.
There is an unlimited supply of vitamin additives. Other variables costs are 10p per kg for
the standard drink, 9p per kg for the health drink and 12p per kg for the invalid drink.
a) Formulate the linear programming model for this problem with the objective of
maximizing total contribution per week.
b) The final simplex table for the solution to this problem is given below:
m h i S1 S2 S3 S4 S5 S6 b
S1 0 0 0 1 -1 0 0 0.1 0.15 110
h 0 1 0 0 0 0 0 1 0 1800
i 0 0 1 0 0 0 0 0 1 1200
p 0 0 0 0 1.617 0 0 0.251 0.56 3144.33
Where m, h, i refer to the standard, health and invalid drinks respectively. S1, S2, S3 refer to
the constraints on sugar, malt and skimmed milk, respectively S4, S5, S6 refer to the
constraints on the maximum demand for the standard, health and invalid drinks
respectively.
Determine:
(a) the optimum product mix;
(b) the maximum value of the weekly contribution;
(c) The spare capacity on the constraints.
CHAPTER 16 Linear programming simplex method 309
Required:
a) What is the objective?
b) Formulate the above problem as a linear programming model.
c) Using Solver in excel solve the problem.
d) Interpret the reduced cost associated with ingredient four.
e) How many units of the compounds Kemone, Kemtwo and Kemthree are in
five kilograms (standard packaging) of the optimal blend?
f) If the cost per kilogram of ingredient one increases from 8 shillings to 9
shillings, compute the cost of the five-kilogram package.
g) The minimum cost per kilogram of the blend needs to be reduced to 4.50
shillings. List the compounds whose requirements can be relaxed to realize
this goal.
h) An academic journal on animal nutrition has indicated that the requirements
for Kemone can relaxed to 5 units on the condition that the requirements for
Kemtwo are boosted to 7 units and that for Kemthree rose to 5.3 units. Is this
advisable? Explain.
5. A feed manufacturer produces three types of feeds; X1, X2 and X3. Production of each
type requires The use of three types of resources. Resource requirements (in
kilograms) and availability together With the profit contribution margins are shown
in the table below.
TYPE OF FEED
RESOURCES X1 X2 X3 AVAILABLE (KG)
1 7 8 7 6,500
2 2 3 3 1,800
3 6 4 5 5,000
PROFIT 7 9 9
MARGIN
CHAPTER 16 Linear programming simplex method 310
Required;
a) Formulate this manufacturing situation as a linear programming problem.
b) Using Solver in excel solve the problem.
c) Highlight the implication of the reduced cost for X3.
d) You have been informed that the availability of resource 2 can be raised to
2000kg and that the profit margin for X2 can go up to 10 shillings per unit.
Compute the new Z value.
e) The marketing department has established that there is a market for a new
product, which will require 5kg of resource 1, 4kg of resource 2 and 5kg of
resource 3. The new product has a contribution margin of 8 shillings per unit.
Advice management on the viability of the new product.
DUAL PROGRAM/ MINIMIZING SIMPLEX METHOD
Learning Objectives
At the end of this Section the students should be able to:
Example 17.4
Solution
Minimizing cost,
= C 300a + 600b
Subject to:
CHAPTER 16 Linear programming simplex method 312
5a + 2b ≥ 3
a + 3b ≥ 2
a + 5b ≥ 4
a ≥ 0, b ≥ 0
18
NETWORK ANALYSIS AND
CHAPTER PROJECT SCHEDULING
Learning Objectives
Network analysis is a technique for planning of a project nature for example road construction,
building construction design and implementation program.
The analysis of a project falls into three categories:
The brake down of the project into set individual jobs (activities) and then arranging them in a
logical sequence.
Estimation of the duration of each activity and the identification of the jobs which control a
completion the project.
The estimation of the resource requirement of each activity the rescheduling of the activities to
meet a resource objective the reallocation of money or other resources to improve the
schedule.
Event
It is a point in time and indicates the start or the finish of an activity or activities.
A Dummy activity
This activity that doesn’t consume time or resources. It is used to show logical sequence of
CHAPTER 18 Network Analyses and Project Scheduling 314
Network
A combination of activities, dummy activities and events in logical sequence according to the
rules for drawing network
Critical path
It is a path in a network that takes the most time
Starting event
Event number
Activity Time
Activity
Earliest starting latest
time starting time
Danglers are not allowed in networks
Example 18.1
A bridge construction project consist of the following activities precedence relationship and
time
Required
a) Draw a network diagram
b) Identity the critical path
c) Determine the project completion time
Solution
a)
4
7 7 3
5 F
C
5 2 6 4 7 1 8
1 2 2 7 7 D 9 9 E 13 13 G 14 14
0 0 A 2 2
3
B
3
5 7
b) Critical path
A-C-D-E-F
14 days
CHAPTER 18 Network Analyses and Project Scheduling 316
Example 18.2
Solution
2 7 4
C 4
4 4 6 11 13 E
A 6 3 7
1
0 0 17 17 G 20 20
6 8
B 3 3 5 F
6 6 D 9 9
CHAPTER 18 Network Analyses and Project Scheduling 317
Example 18.3
Premier company is an engineering firm which has contracted to produce a bunch of machines
to be used by Beta shoes company.
Details are given below
A - 9
B - 8
C - 11
D A, B 12
E B, C 10
F B, C 15
G D, E 22
H F, G 8
Required
a) Illustrate the project by an arrow diagram
b) Identify the critical path
c) How many days will the project take?
Solution
a)
3
9 9
12
9
D
A
1 8 2 5 22 6 8 7
0 0 B 8 9 21 21 G 43 43 H 51 51
11 10 15
C E F
4
11 11
CHAPTER 18 Network Analyses and Project Scheduling 318
b) Critical path
A-D-G-H or C-E-G-H
c) 51 days
A standard normal table is one that has a mean of 0 and a standard deviation of 1. All the
normal table that you will come across are set up to handle random variables with µ = 0 and σ =
1.
χ −µ
Z= Where
σ
Suppose we have µ = 100 and σ =15 and we are to calculate the probability of a random
variable X is less than 130, P(X < 130)
This means that the point X is 2.0 standard deviation to the right of the mean. We can look at
the table of normal curve areas attached at the appendices
But for our practice let use the following given table
CHAPTER 18 Network Analyses and Project Scheduling 319
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score.
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 .50000 .50399 .50798 .51197 .51595 .51994 .52392 .52790 .53188 .53586
0.1 .53983 .54380 .54776 .55172 .55567 .55962 .56356 .56749 .57142 .57535
0.2 .57926 .58317 .58706 .59095 .59483 .59871 .60257 .60642 .61026 .61409
0.3 .61791 .62172 .62552 .62930 .63307 .63683 .64058 .64431 .64803 .65173
0.4 .65542 .65910 .66276 .66640 .67003 .67364 .67724 .68082 .68439 .68793
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
0.6 .72575 .72907 .73237 .73565 .73891 .74215 .74537 .74857 .75175 .75490
0.7 .75804 .76115 .76424 .76730 .77035 .77337 .77637 .77935 .78230 .78524
0.8 .78814 .79103 .79389 .79673 .79955 .80234 .80511 .80785 .81057 .81327
0.9 .81594 .81859 .82121 .82381 .82639 .82894 .83147 .83398 .83646 .83891
1.0 .84134 .84375 .84614 .84849 .85083 .85314 .85543 .85769 .85993 .86214
1.1 .86433 .86650 .86864 .87076 .87286 .87493 .87698 .87900 .88100 .88298
1.2 .88493 .88686 .88877 .89065 .89251 .89435 .89617 .89796 .89973 .90147
1.3 .90320 .90490 .90658 .90824 .90988 .91149 .91309 .91466 .91621 .91774
1.4 .91924 .92073 .92220 .92364 .92507 .92647 .92785 .92922 .93056 .93189
1.5 .93319 .93448 .93574 .93699 .93822 .93943 .94062 .94179 .94295 .94408
1.6 .94520 .94630 .94738 .94845 .94950 .95053 .95154 .95254 .95352 .95449
1.7 .95543 .95637 .95728 .95818 .95907 .95994 .96080 .96164 .96246 .96327
1.8 .96407 .96485 .96562 .96638 .96712 .96784 .96856 .96926 .96995 .97062
1.9 .97128 .97193 .97257 .97320 .97381 .97441 .97500 .97558 .97615 .97670
2.0 .97725 .97778 .97831 .97882 .97932 .97982 .98030 .98077 .98124 .98169
This that if this was to represent a group student sitting for quantitative techniques exam the
probability of a student randomly selected is sitting for the quantitative exam is less than 130 is
97.73%
We see that the probability could also be derived from the middle of the graph by
Shaded area of
interest
χ −µ
-3 -2 -1 0 1 2 3 Z=
σ
Another example is that a construction company can build a bridge in 100 days and the
standard deviation is 20 days. Recently the company signed a contract to build a bridge in 125
days. What is the probability that the company will not violate their construction contract?
χ −µ
Z=
σ
From the table Z = 1.25 can be located at 0.89435 by first looking up 1.2 left-hand column of
the table provided below and then moving to 0.05 column so as find the value of Z = 1.25
CHAPTER 18 Network Analyses and Project Scheduling 321
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 .50000 .50399 .50798 .51197 .51595 .51994 .52392 .52790 .53188 .53586
0.1 .53983 .54380 .54776 .55172 .55567 .55962 .56356 .56749 .57142 .57535
0.2 .57926 .58317 .58706 .59095 .59483 .59871 .60257 .60642 .61026 .61409
0.3 .61791 .62172 .62552 .62930 .63307 .63683 .64058 .64431 .64803 .65173
0.4 .65542 .65910 .66276 .66640 .67003 .67364 .67724 .68082 .68439 .68793
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
0.6 .72575 .72907 .73237 .73565 .73891 .74215 .74537 .74857 .75175 .75490
0.7 .75804 .76115 .76424 .76730 .77035 .77337 .77637 .77935 .78230 .78524
0.8 .78814 .79103 .79389 .79673 .79955 .80234 .80511 .80785 .81057 .81327
0.9 .81594 .81859 .82121 .82381 .82639 .82894 .83147 .83398 .83646 .83891
1.0 .84134 .84375 .84614 .84849 .85083 .85314 .85543 .85769 .85993 .86214
1.1 .86433 .86650 .86864 .87076 .87286 .87493 .87698 .87900 .88100 .88298
1.2 .88493 .88686 .88877 .89065 .89251 .89435 .89617 .89796 .89973 .90147
Shaded area of
interest
We are also told further that if the company is able to finish within 75 days it will be awarded by
the ministry of roads and works a bonus of KES 100,000, what is the probability that they will
receive the bonus?
CHAPTER 18 Network Analyses and Project Scheduling 322
χ −µ
Z=
σ
Sometime you may be given tables that do not have the negative which should be calculated as
follows
= 10. 57%
Alternatively this book provide the negative area of Z as given below
To look up for the Z = - 1.25 by first locating the column of – 1.2 and then moving to the 0.05
column and write down the figure.
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
-1.2 .11507 .11314 .11123 .10935 .10749 .10565 .10383 .10204 .10027 .09853
-1.1 .13567 .13350 .13136 .12924 .12714 .12507 .12302 .12100 .11900 .11702
-1.0 .15866 .15625 .15386 .15151 .14917 .14686 .14457 .14231 .14007 .13786
-0.9 .18406 .18141 .17879 .17619 .17361 .17106 .16853 .16602 .16354 .16109
-0.8 .21186 .20897 .20611 .20327 .20045 .19766 .19489 .19215 .18943 .18673
-0.7 .24196 .23885 .23576 .23270 .22965 .22663 .22363 .22065 .21770 .21476
-0.6 .27425 .27093 .26763 .26435 .26109 .25785 .25463 .25143 .24825 .24510
-0.5 .30854 .30503 .30153 .29806 .29460 .29116 .28774 .28434 .28096 .27760
-0.4 .34458 .34090 .33724 .33360 .32997 .32636 .32276 .31918 .31561 .31207
-0.3 .38209 .37828 .37448 .37070 .36693 .36317 .35942 .35569 .35197 .34827
-0.2 .42074 .41683 .41294 .40905 .40517 .40129 .39743 .39358 .38974 .38591
-0.1 .46017 .45620 .45224 .44828 .44433 .44038 .43644 .43251 .42858 .42465
-0.0 .50000 .49601 .49202 .48803 .48405 .48006 .47608 .47210 .46812 .46414
Shaded area of
interest
75 100 X = days
Finally, what if the bridge is constructed in within 110 days what will be the probability
χ −µ
Z=
σ
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 .50000 .50399 .50798 .51197 .51595 .51994 .52392 .52790 .53188 .53586
0.1 .53983 .54380 .54776 .55172 .55567 .55962 .56356 .56749 .57142 .57535
0.2 .57926 .58317 .58706 .59095 .59483 .59871 .60257 .60642 .61026 .61409
0.3 .61791 .62172 .62552 .62930 .63307 .63683 .64058 .64431 .64803 .65173
0.4 .65542 .65910 .66276 .66640 .67003 .67364 .67724 .68082 .68439 .68793
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
The probability is
0.69146
CHAPTER 18 Network Analyses and Project Scheduling 324
We need to subtract the probability of finishing within 125 days and that of finishing within 110
days.
0.89435 – 0.69146
= 0.20289
Thus the probability between 110 and 125 days is 20.29%
It can be represented as follows
Shaded area of
interest
Example 18.4
A Highway contract have been given a contract to recarpet Mai Mahiu road the project manager
has identified eight essential activities in this network. He has also listed the activity as below.
Required
a) Calculate the expected time
b) Illustrate the project by an arrow diagram
CHAPTER 18 Network Analyses and Project Scheduling 325
c) What is the probability that the project will take less than 30 weeks
Solution
a + 4m + b
When calculating the expected time we use the formulae where;
6
a = Optimistic
b = Pessimistic
m = Mostly likely
2 + 4(3) + 4 18
A
= = = 3
6 6
5 + 4(5.5) + 9 36
B
= = = 6
6 6
6 + 4(7) + 8 42
C
= = = 7
6 6
4 + 4(8.5) + 10 48
D
= = = 8
6 6
1 + 4(3.5) + 9 24
E
= = = 4
6 6
1 + 4(3) + 5 18
F
= = = 3
6 6
8 + 4(9) + 16 60
G
= = = 10
6 6
1 + 4(3) + 5 18
H
= = = 3
6 6
2
3 12 8
3 D
A
4 3 5 3 6
1 6 11 14 17 17
F H 20 20
0 0 B
7 4 10
C E G
3
7 7
When calculating the probability that the project will take less than 30 days weeks, we use the
2
b−a
Following formulae δ =
2
6
Thus δ 2 = δ C2 + δ G2 + δ H2
2 2
8−6 2 4
δ =
= 2
=
C
6 6 36
2 2
16 − 8 8 64
δ G2
= = =
6 6 36
2 2
5 − 1 4 16
δ
= 2
=
H =
6 6 36
4 64 16 84
δ2 = + + = = 2.3
36 36 36 36
δ 2 = 2.3
δ = 2.3
= 1.52
CHAPTER 18 Network Analyses and Project Scheduling 327
Using the Chebychev’s theorem which shows the probability as given below by the chart
68%
95%
100%
−δ δ
Using the above we can be able to check the probability of 1.52 as follows
A 20 30 B
1
The total distance point A to B is equal to 1 since we are dealing with the probability and the
probabilities are equal to one.
That is we use the Z sore principle which is given by the formulae given below
χ −µ
Z= Where
σ
Example 18.5
Given the following information, Draw the Network diagram and identify critical path. What is
the probability that project will take 30 days to complete
Solution
a + 4m + b
Using the formulae we have to calculate the expected time as given below
6
a = Optimistic
b = Pessimistic
m = Mostly likely
CHAPTER 18 Network Analyses and Project Scheduling 329
2 + 4(3) + 4 18
A
= = = 3
6 6
1 + 4(2) + 3 12
B
= = = 2
6 6
4 + 4(5) + 12 36
C
= = = 6
6 6
3 + 4(4) + 5 24
D
= = = 4
6 6
1 + 4(3) + 5 18
E
= = = 3
6 6
1 + 4(2) + 3 12
F
= = = 2
6 6
1 + 4(8) + 9 42
G
= = = 7
6 6
2 + 4(4) + 6 24
H
= = = 4
6 6
2 + 4(4) + 12 30
I
= = = 5
6 6
3 + 4(4) + 5 24
J
= = = 4
6 6
5 + 4(5) + 8 42
K
= = = 7
6 6
Using the above table we can now use network diagram to represent the above information,
CHAPTER 18 Network Analyses and Project Scheduling 330
3
5 6
3
E 10
2 B 6 4 8
5 9 7
24 24
2 5 9 H 12 12 I 17 17 K
0 3 4 F
1 6
0 0 A 9 7
3 3 C
4 J
4
D
5 7 7
7 7 G 14 17
When calculating the probability that the project will take 30 day we must first calculate using
2
b−a
the following formulae δ 2 =
6
We must identify the critical path which is
Example 18.6
A certain project had the following information given by the project manager as given in the
table above.
CHAPTER 18 Network Analyses and Project Scheduling 331
The project indirect costs are KES 1300. The contract specifies a penalty of KES 1000 if the
project is not finished by the end of 15 days.
Required
Draw the network and state overall expected project completion time.
Calculate the cost of the project.
State the critical activities.
What is the probability could be completed without incurring any penalty.
Solution
a + 4m + b
We have to calculate the expected time using the formulae as follows.
6
3 + 4(4) + 5 24
A
= = = 4
6 6
4 + 4(7) + 10 42
B
= = = 7
6 6
4 + 4(5) + 10 30
C
= = = 6
6 6
5 + 4(6) + 7 36
D
= = = 6
6 6
2 + 4(2.5) + 6 18
E
= = = 3
6 6
10 + (10.3) + 14 66
F
= = = 11
6 6
3 + 4(4) + 5 24
G
= = = 4
6 6
1 + 4(2) + 9 18
H
= = = 3
6 6
H G, F 3 300
2
4 6 6
4 D
A 5 4 6 3 7
3 10 12 G 16 16 H 19 19
1 7 3 E
0 0 B 7 9
11
5
F
C
4
5 5
1300 ×19 =
24700
δ 2 = δ C2 + δ F2 + δ H2
CHAPTER 18 Network Analyses and Project Scheduling 333
2
b−a
δ =
2
6
2
6−4
=δ C2 = 0.11
6
2
7−5
=δ =
2
F 0.44
6
2
9 −1
=δ H2 = 1.78
6
δ 2 = 0.11 + 0.44 + 1.78
δ= 0.11 + 0.44 + 1.78
δ = 2.33
= 1.53
Using the principle that we developed previously of the Z score we can calculate the probability
as follows
χ −µ
Z= Where
σ
15 − 19 4
Z= = −
1.53 1.53
= −2.62
=0.0045
CHAPTER 18 Network Analyses and Project Scheduling 334
15 19 days
0.5
The total cost of the project depends on the cost of individual activities plus any additional
valuables of fixed cost. Since all activities must be completed whether they are critical or not
Note that the total; cost of the activities is simply the sum of individual values may be possible
to reduce the duration of a specific activity by employing additional resources.
The implication of this is the cost of that activity will increase. However if the activity is critical a
saving in its duration (time) may result in overall saving in time on the cost and consequently
reduction in the project cost.
The shortest possible time in which an activity can be completed is called crash time
Example 18.7
XYZ Company is involved in the following projects
Activity Predecessor Normal Crash Normal Crash Cost
Time Time Cost (KES) (KES)
(days) (days)
A - 8 4 15,000 18,000
B - 10 8 17,000 22,000
C - 6 5 12,000 14,000
D A, B 8 5 26,000 32,000
E B, C 9 6 28,000 33,000
F C 14 11 29,000 36,000
G D, E 14 10 27,000 37,000
H F, G 6 4 11,000 13,000
In addition to cost of each activity there is site cost KES 1500 per day
Solution
4
4 9
(8) 10 11 5
4 A D (8)
We first calculate the normal cost by adding all the normal cost of every individual activity as
follows.
Normal cost = 15,000 + 17,000 + 12,000 + 26,000 + 28,000 + 29,000 + 27,000 + 11,000
= 165,000
= 165,000+58,500= 223,500
Calculating the crash time we are going to use the duration in the network diagram
= 205500
Variable Cost= 28 × 1500 = 42,000
The additional cost will be given by getting the difference between the crash time and the
normal cost,
CHAPTER 18 Network Analyses and Project Scheduling 336
=24,000
Look at the non critical events that is A, C, D, and F and see whether there is possibility of using
the normal time and still finishing the project 28 days (crash time)
Float time
Tail Head
6 6 7
4 7 K 9 14
Earliest Tail Latest Head time
Time
Total float
Total float is the amount of time path activities could be delayed without affecting the overall
project duration. It is given by:
Total Float = Latest Head Time – Earliest Tail Time – Activity Duration
14 – 4 – 6 = 4
CHAPTER 18 Network Analyses and Project Scheduling 337
Free float
Free float time is the amount of time activity can be delayed without affecting the
commencement of a subsequent activity at its earliest start time but may affect float of a
previous activity
Free time = Earliest Head Time – Earliest Tail Time – Activity Duration
9–7–6=1
This means that there will be a deficit of on day before the project finishes.
Independent Float
Independent Float is the amount time activity can be delayed when all preceding activities are
completed as late as possible and all succeeding activities are completed as early as possible.
Independent Float = Earliest Head time – Latest Tail Time – Activity duration
9 – 7 – 6 = -4
Example 18.8
A manufacturer wishes to investigate the cause of engine failure in last 3 DC 10 plane crash.
Below are the activities their interrelation and their respective track of time.
Solution
9
3 46 48
13 18
10
3 H
D
1 3 2 15 5 15 6 10 7 5 10 12 11 2 12
0 0 A 3 3 C 18 18 E 33 33 F 43 43 G 48 48 I 60 60 J 62 62
20
B
4
23 18
CHAPTER 18 Network Analyses and Project Scheduling 339
1.
Practice Problem
1. A certain project had the following had information
Variable overhead cost of KES 3000 per week for the project duration
a) Determine the normal overall completion time and total cost of the project
b) Determine the minimum time in which the project can be completed and
associated minimum cost
3. Dema Builders Ltd has been awarded a tender to construct a bridge. The bridge
construction project consist of the following activities
The project indirect costs are KEs 30,000 per day. The contract with the customers
specifies a penalty of KES 10,000 per day if the project is not finished at the end of 15
days.
The time taken to complete tasks A, B, D, K and L is somewhat uncertain and so the following
optimistic and pessimistic estimates have also been made to supplement the most likely figure
given above. The additional estimates are:
Learning Objectives
Transportation problem is concerned with allocation of items between suppliers (origin) and
consumers (destination) so that the total cost allocation is minimized. This kind of problem can
be solved using linear programming or a special transportation algorithm.
For as to solve a problem using transportation algorithm a number of conditions must be made.
a) The cost per item for each combination of origin and destination must be specified
b) The supply of items at each origin must be known.
c) The requirement of item at each destination must be known.
d) The total supply must be equal to the total demand
Finding an Allocation
There are two method of finding initial allocation which the book will focus on:
a) Minimum cost method
CHAPTER 19 Transportation model 344
b) Vogel method
Table 1
Sugar Transportation cost in Total
KES to supermarkets available
Deports 1 2 3
A 100 200 50 900
B 20 100 80 400
C 10 200 70 800
Total 300 500 600
Required
Table 2
Sugar Transportation cost in Total
shs to supermarkets available
Deports 1 2 3
A 100 200 50 900
B 20 100 80 400 A total of 2100
C 10 200 70 800
Total 300 500 600
Required
A total of 1400
CHAPTER 19 Transportation model 345
The table above will be added one column for the dummy supermarket that is to be created in
order the supply will be equal to the demand.
Table 3
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 100 80 0 400 Supply is 2100
C 10 200 70 0 800
Total 300 500 600 700
Required
Demand is 2100
Table 4
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 100 80 0 400
C 10 200 70 0 7001 800 100
Total 300 500 600 700
Required 0
In column 4 the cost are all zero and we can allocate at random by choosing one of the three
zeros
When allocating for example if we choose cell C4 we check what is the demand which is (700
bags) and supply which is (800 bags) subtract what we need and leave the rest for another
allocation.
If the allocation is exhausted that is it is have given us a zero after the allocation we no longer
need the cells in that column or row and we close them by putting a cross as given in the Table 5
CHAPTER 19 Transportation model 346
Table 5
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 100 80 0 400
C 10 200 70 0 7001 800 100
Total 300 500 600 700
Required 0
Now we move to the next smallest cost which is C1 (10) which requires 300 bags while our
deport can only supply 100 bags we allocate the 100 bags, the remain 200 bags to allocate later
as given in the table 6
Table 6
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 100 80 0 400
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0
We can see that in row C the supply has been exhausted and it is now a zero, this means that
we don’t need the rest of the remaining cells in that row and we must cross them as in the table
7 given below.
CHAPTER 19 Transportation model 347
Table 7
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 100 80 0 400
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0
We again check the smallest cost which is in row B (20) and we see that supermarket 1 require
200 bags and there is 400 bags which deport B is able to supply so we deduct what we require
that is 200 bags as in the table 8
Table 8
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 2003 100 80 0 400 200
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0
0
The supermarket 1 demand has been exhausted and the total required is zero now and we need
to cross the remaining one cell in the column as shown in table 9
CHAPTER 19 Transportation model 348
Table 9
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 0 900
B 20 2003 100 80 0 400 200
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0
0
Repeating the same procedure we check the smallest cost again on the remain cells which is in
row A (50), in that figure we see what is required is 600 bags by supermarket 3 and deport A is
able to supply 900 bags, thus we deduct what we need which is 600 bags as shown in the table
10
Table 10
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 6004 0 900 300
B 20 2003 100 80 0 400 200
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0 0
0
The column of the supermarket 3 have been exhausted and now the required bags are zero thus
we need to cross the remaining one cell as in the table 11
CHAPTER 19 Transportation model 349
Table 11
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 6004 0 900 300
B 20 2003 100 80 0 400 200
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 0 0
0
Finally we can allocate the two remaining cell A2 and B2, using the same principle we check the
smallest cost between these two which is B2 (100) that means that supermarket 2 requires 500
bags and deport B is willing and able to supply 200 bags at cost of KES 100, so we take the 200
bags available and get the remaining 300 bags to deport A which is able to supply 300 bags at a
cost of KES 200.
Table 12 shows both allocations starting with the smallest cost which is (100)
Table 12
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 3006 50 6004 0 900 300
B 20 2003 100 2005 80 0 400 200
C 10 1002 200 70 0 7001 800 100 0
Total 300 500 600 700
Required 200 300 0 0
0 0
The minimum cost that the supermarket can incur is summarized below
From deport A allocate 300 bags to supermarket 2 300 × 200 = 60,000
From deport A allocate 600 bags to supermarket 3 600 × 50 = 30,000
From deport B allocate 200 bags to supermarket 1 200 × 20 = 4,000
From deport B allocate 200 bags to supermarket 2 200 × 100 = 20,000
From deport C allocate 100 bags to supermarket 1 100 × 10 = 1,000
700 bags will remain in deport C 700 × 0 = 0
115,000
CHAPTER 19 Transportation model 350
Alternative allocation
We can use the same minimum cost method to allocate by now we can select at random the
smallest cost to be A4 and start from there.
Following all the steps we have done in the above we can come up with the final table as shown
in table 13
Table 13
Sugar Transportation cost in shs to Total
supermarkets available
Deports 1 2 3 4
A 100 200 50 2003 0 7001 900 200
B 20 100 4005 80 0 400 0
C 10 3002 200 1006 70 4004 0 800 500 100 0
Total 300 500 600 700
Required 0 100 400 0
101,000
CHAPTER 19 Transportation model 351
Vogel method
This method uses penalty cost for each row and column the penalty costs is the difference
between cheapest available route (lowest cost) and the next cheapest.
When you calculate the difference between the lowest two costs in each row and column, pick
the highest penalty and allocate as much as possible to the cell with the smallest cost.
Using the example 1 we can illustrate Vogel method, first we introduce one row of penalty and
another column of penalty and get the difference between the two lowest costs and write them
down in the penalty column and row as in the table 14
Example 19.2
Table 14
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1
A 100 200 50 0 900 50
B 20 100 80 0 400 20
C 10 200 70 0 800 10
Total 300 500 600 700
Required
P1 10 100 20 0
Penalties
When we are allocating using this method we concentrate on the penalties and pick the column
and row the highest value on either, for our case in the table 14, pick 100 as the highest figure.
Using that 100 check the column and allocate to the lowest value and note that our interest is
the values on the Deport A, B and C in that column.
CHAPTER 19 Transportation model 352
The lowest value is 100 and that is where our allocation where supermarket 2 require 500 bags
and deport B is able to supply 400 bags , we deduct what the deport is supplying and we are
left with a demand of 100 bags which will be supplied later as shown in the table 15
Table 15
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1
A 100 200 50 0 900 50
B 20 100 4001 80 0 400 0 20
C 10 200 70 0 800 10
Total 300 500 600 700
Required
P1 10 1001 20 0
Penalties
The supply in row B is exhausted and all the cells in that row except where there is allocation
are to be crossed as in table 16
Table 16
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1
A 100 200 50 0 900 50
B 20 100 4001 80 0 400 0 20
C 10 200 70 0 800 10
Total 300 500 600 700
Required 100
P1 10 1001 20 0
Penalties
CHAPTER 19 Transportation model 353
Repeat the same process of getting the penalties (P2) from the remaining cost without
considering the crossed cells as in table 17
Table 17
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2
A 100 200 50 0 900 50 50
B 20 100 4001 80 0 400 0 20
C 10 200 70 0 800 10 10
Total 300 500 600 700
Required 100
P1 10 1001 20 0
P2 90 20 0
Penalties
Identify the highest penalty for our case in the table 17 is (90) and allocate to the lowest cost
value which is (10) as in the table 18
Table 18
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2
A 100 200 50 0 900 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 800 500 10 10
Total 300 500 600 700
Required 0 100
P1 10 1001 20 0
P2 902 20 0
Penalties
CHAPTER 19 Transportation model 354
Since the column with allocation have been exhausted we have to cross the remaining cell A1 as
in the table 19
Table 19
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2
A 100 200 50 0 900 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 800 500 10 10
Total 300 500 600 700
Required 0 100
P1 10 1001 20 0
P2 902 20 0
Penalties
Repeat the same process of generating the penalties (P3) by getting the difference of between
the two least values in each row and column as in table 20
Table 20
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2 P3
A 100 200 50 0 900 50 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 800 500 10 10 70
Total 300 500 600 700
Required 0 100
P1 10 1001 20 0
P2 902 20 0
Penalties
P3 0 20 0
CHAPTER 19 Transportation model 355
From the penalties we pick the highest penalty for our case we have (70) and allocate that as
penalty (703) which is in the column of penalties and allocate to the lowest cost value which is
zero as in table 21
Table 21
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2 P3
A 100 200 50 0 900 50 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 800 500 10 10 703
Total 300 500 600 700
Required 0 100
P1 10 1001 20 0
P2 902 20 0
Penalties
P3 0 20 0
We need to allocate 700 bags but the deport C is able to supply 500 bags allocate what is
available and leave the remaining for another allocation as in table 22
Table 22
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2 P3
A 100 200 50 0 900 50 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 5003 800 500 10 10 703
Total 300 500 600 700
Required 0 100 200
P1 10 1001 20 0
P2 902 20 0
Penalties
P3 0 20 0
CHAPTER 19 Transportation model 356
In Deport C we have exhausted the supply and we have to cross the remaining cells since there
are no longer available as in table 23
Table 23
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2 P3
A 100 200 50 0 900 50 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 5003 800 500 10 10 703
Total 300 500 600 700
Required 0 100 200
P1 10 1001 20 0
P2 902 20 0
Penalties
P3 0 20 0
The rest remaining cells can be allocated without allot of mechanics since we can assume they
are penalties and allocate from the highest penalty of 200, 50, and then last figure is zero as in
table 24.
Table 24
Sugar Transportation cost in shs to Total Penalties
supermarkets available
Deports 1 2 3 4 P1 P2 P3
A 100 200 1004 50 6005 02006 900 800 600 50 50 50
B 20 100 4001 80 0 400 0 20
C 10 3002 200 70 0 5003 800 500 10 10 703
Total 300 500 600 700
Required 0 100 200
0 0
P1 10 1001 20 0
P2 902 20 0
Penalties
P3 0 20 0
CHAPTER 19 Transportation model 357
The above table 24 is fully allocated and the following are the summary of the allocation.
Table 25
Sugar Transportation cost in KES to Total
supermarkets available
v1 v2 v3 v4
Deports 1 2 3 4
u1 A 100 200 1004 50 6005 02006 900
u2 B 20 100 4001 80 0 400
u3 C 10 30 v 02 200 70 0 5003 800
4
Test whether the allocation is basic we use m + n − 1 m + n − 1 where m is the number of columns
and n the number of rows which is supposed to give the number of allocation.
For our example 4 + 3 − 1 =6 and our allocation were six which means it is basic.
If the allocation is not basic then allocate zero to any of the allocated cell.
After allocating the component the cells we are going to calculate in our case are
A2 , A3 , A4 , B2 , C1 , and C4 they give the following simultaneous equations.
A2 = u1 + v2 = 200
A3 = u1 + v3 = 50
A4 = u1 + v4 = 0
B2 = u2 + v2 = 100
C1 = u3 + v1 = 10
C4 = u3 + v4 = 0
By convention the first deport (U) is assigned the value of zero that u1 is equal to zero. Thus
given that u1 = 0 then we can calculate v2 as:
u1 = 0
A2 = u1 + v2 = 200
0 + v2 = 200
v2 = 200
A3 = u1 + v3 = 50
u1 = 0
0 + v3 =
50
v3 = 50
A4 = u1 + v4 = 0
u1 = 0
0 + v4 =
0
v4 = 0
B2 = u2 + v2 = 100
u2 = 200
200 + v2 =
100
v2 100 − 200
=
v2 = −100
C4 = u3 + v4 = 0
v4 = 0
u3 = 0
C1 = u3 + v1 = 10
u3 = 0
0 + v1 =
10
v1 = 10
Using the values below we can be able to calculate the shadow cost of an occupying cells and
can be calculated using the following values.
v1 = 10
u1 = 0
v2 = 200
and u2 = −100
v3 = 50
u3 = 0
v4 = 0
Shadow cost
A1 = u1 + v1 = ?
B1 = u2 + v1 = ?
B3 = u2 + v3 = ?
B4 = u3 + v4 = ?
C2 = u3 + v2 = ?
C3 = u3 + v3 = ?
After substituting the shadow cost using the value given above we obtain.
CHAPTER 19 Transportation model 360
A1 =0 + 10 =10
−100 + 10 =
B1 = −90
−100 + 50 =
B3 = −50
B4 =−100 + 0 =−100
0 200 =
C2 =+ 200
C3 =0 + 50 =50
We are supposed to get the difference between the actual and the shadow cost.
Table 26
Actual cost Shadow Difference
cost
A1 100 10 +90
B1 20 -90 +110
B3 80 -50 +130
B4 0 -100 +100
C2 200 200 0
C3 70 50 +20
It is a basic allocation since all the values are positive and any unit you take in given cell A1 will
increase by +90 and allocation is optimum.
Example 19.3
A firm of office equipment suppliers has three deports located in various in various terms. It
receives orders for a total of 600 laptops from 4 customers in total in the three deports there
are 600 laptops available and management wishes to minimize delivery by dispatching the
laptops from the appropriate deports for each customers.
Details of availability requirement and transport cost per laptop are given below.
CHAPTER 19 Transportation model 361
Table 27
A B C D Total
available
X 130 110 200 200 80
Y 170 140 130 130 240
Z 180 180 120 120 280
Total 120 120 160 200
required
Required
Make a feasible allocation of deliveries.
Check the solution to see if it represents the minimum cost possible and hence calculate the
minimum cost.
Solution
Now we are already familiar with making allocation using either the minimum cost method or
the Vogel method. In our case we are going to use the Vogel method because it gives the
minimum cost possible.
We are going to use the final table bearing in mind that you already know to follow the steps to
make the allocation as in table 28.
Table 28
A B C D Total Penalties
available
P1 P2 P3
X 130 110 200 200 80 0 0
801
Y 170 140 130 130 240 120 0
1202 1203 10 10 10
Z 180 180 120 120 280 200 80
405 404 1206 30 30 30
Total 120 120 160 200
required 40 0 40 0
0 0
P1 401 30 30 10
Penalties
P2 10 402 30 10
P3 10 0 303 10
CHAPTER 19 Transportation model 362
We test whether the allocation is basic using the formulae m + n − 1 where 4 + 3 − 1 =6 and the
number of the allocation that we have made are six thus our problem is basic. Now let test for
optimality and introduce our row component ui and column component v j .
In our case let start by assigning component v1 , v2 , v3 and v4 to supermarket 1, 2 , 3 and
respectively and assign u1 , u2 and u3 respectively.
Table 29
A B C D Total
available
v1 v2 v3 v4
u1 X 130 110 200 200 80
801
u2 Y 170 140 130 130 240
1202 1203
u3 Z 180 180 120 120 280
405 404 1206
Total 120 120 160 200
required
After allocating the component the cells lets calculate following simultaneous equations.
X A = u1 + v1 = 130
YB = u2 + v2 = 140
YC = u2 + v3 = 120
Z A = u3 + v1 = 180
Z C = u3 + v3 = 150
Z D = u3 + v4 = 120
X A = u1 + v1 = 130
u=0
0 + v1 =
130
v1 = 130
CHAPTER 19 Transportation model 363
Z A = u3 + v1 = 180
v1 = 130
u3 + 130 = 180 − 130
u3 = 50
With u3 = 50 we can be able to calculate v3 and v4 using the following two equation
Z C = u3 + v3 = 150
u3 = 50
50 + v3 = 150 − 50
v3 = 100
Z D = u3 + v4 = 120
u3 = 50
50 + v4 =
120
v4 = 70
YC = u2 + v3 = 120
v3 = 100
u2 + 100 =
120
u2 = 20
Y2 = u2 + v2 = 140
u2 = 20
20 + v2 =
140
v2 = 120
Using the values that we have solved for let us now calculate the shadow cost of the un
occupied cells given the values of ;
CHAPTER 19 Transportation model 364
v1 = 130
u1 = 0
v2 = 120
u2 = 20 and
v3 = 100
u3 = 50
v4 = 70
X B = u1 + v2 = 120
X C = u1 + v3 = 100
X D = u1 + v4 = 70
YA = u2 + v1 = 150
YD = u2 + v4 = 90
Z B = u3 + v2 = 170
Get the difference between the actual cost and the shadow cost
Table 30
Actual cost Shadow Difference
cost
XB 110 120 -10
XC 150 100 +50
XD 200 70 +130
YA 170 150 +20
YD 130 90 +40
ZB 180 170 +10
This means that the total cost could be reduced by KES 10 for every unit and that can be
transferred to X B .
Since there is a cost reduction that can be made then the above solution is not optimal.
To make the solution optimal we follow the following steps
If there is more than one empty cell negative shadow costs choose the cell with the largest
negative value.
Find the stepping circuit for this empty cell.
The table 31 on the next page shows the stepping circuit
CHAPTER 19 Transportation model 365
Table 31
A B C D Total
available
v1 v2 v3 v4
u1 X 80
801 +
u2 Y 1202 1203+ 240
Note that when moving the stepping circuit always move horizontally and vertically but not
diagonal. When there more than two values on the rows or column use only two points
according to which cell is your focus to avoid two same signs that is why we are advised to use
even cell not odd.
Using our largest negative which is -40 now any cell that is negative subtract the highest value
that is (-40) and add (+40) to every cell where there is a positive sign.
Again note that the move should not interfere with the allocation.
Table 32
A B C D Total
available
v1 v2 v3 v4
u1 X 80
40 801 +40
u2 Y 40 1202 1203+40 240
The new allocation will appear as the one on table 33 and it will not interfere with the previous
allocation
Table 33
A B C D Total
available
v1 v2 v3 v4
u1 X 80
40 40
u2 Y 80 160 240
u3 Z 80 200 280
X A = u1 + v1 = 130..............................(i )
X B = u1 + v2 = 110.............................(ii )
YB = u2 + v2 = 140..............................(iii )
YC = u2 + v3 = 120...............................(iv)
Z A = u3 + v1 = 180...............................(v)
Z D = u3 + v4 = 120...............................(vi )
X A = u1 + v1 = 130.........................(i )
u1 = 0
0 + v1 =
130
v1 = 130
Using the same u1 = 0 we can be able to solve v2 using the second equation X B = u1 + v2 = 110
CHAPTER 19 Transportation model 367
X B = u1 + v2 = 110...............................(ii )
u1 = 0
0 + v2 =
110
v2 = 110
Let take v2 = 110 , we can get the value of u2 using the third equation YB = u2 + v2 = 140
YB = u2 + v2 = 140..............................(iii )
v2 = 110
u2 + 110 = 140 − 110
u2 = 30
YC = u2 + v3 = 120............................(iv)
u2 = 30
30 + v3 = 120 − 30
v3 = 90
Previously in our first equation we had solve for the value v1 = 130 lets solve for u3 using
Z A = u3 + v1 = 180
Z A = u3 + v1 = 180..............................(v)
v1 = 130
u3 + 130 = 180 − 130
u3 = 50
Finally with the value of u3 = 50 we can use the sixth equation to calculate the value of v4 using
Z D = u3 + v4 = 120
Z D = u3 + v4 = 120...................................(vi )
u3 = 50
50 + v4 = 120 − 50
v4 = 70
The summary of the values that we have solve are given below
CHAPTER 19 Transportation model 368
v1 = 130
u1 = 0
v2 = 110
u2 = 30 and
v3 = 90
u3 = 50
v4 = 70
We use the values to solve the shadow cost of the unoccupied cells:
X C = u1 + v3 = 90
X D = u1 + v4 = 70
YA = u2 + v1 = 160
YD = u2 + v4 = 100
Z B = u3 + v2 = 160
Z C = u3 + v3 = 140
Get the difference between the actual cost and the shadow cost
Table 34
Actual Cost Shadow cost Difference
XC 150 90 +60
XD 200 70 +130
YA 170 160 +10
YD 130 100 +30
ZB 180 160 +20
ZC 150 140 +10
X A = 130 × 80 = 10400
YB = 140 ×120 = 16800
YC = 120 ×120 = 14400
Z A = 180 × 40 = 7200
Z C = 150 × 40 = 6000
Z D =120 × 200 = 24000
78, 800
X A = 130 × 40 = 5200
X B = 110 × 40 = 4400
YB = 140 × 80 = 11200
YC = 120 ×160 = 19200
Z A = 180 × 80 = 14400
Z D =120 × 200 = 24000
78, 400
The difference is (78,800-78,400) = 400
This means for every item moved to X B we will save KES 10 and have 400 that means we need
40 units times 10 gives 400.
Degeracy
A solution is degerate when there are fewer than m + n − 1 allocation in the final table that is if
not basic it is degerate.
It can be overcome by allocating a very small amount essential zero to an independent cell
Example 19.4
Three warehouses XYZ can supply 600, 300 and 400 items to three retailers I, 2 and 3. The
retailer requires 400, 500 and 100 items respectively. Calculate the optimum allocation and
hence optimum transportation cost using the table below.
Table 35
From To Retailers
warehouse 1 2 3
X 60 40 90
Y 50 30 20
Z 20 30 60
CHAPTER 19 Transportation model 370
Solution
Include a row for the demand that is what is required by the retailers and a column for the
supply that is what is available in the warehouse.
Table 36
From To Retailers Total
warehouse available
1 2 3
X 60 40 90 600
Y 50 30 20 300
Z 20 30 60 400
Total 400 500 100
required
Table 37
From To Retailers Total
warehouse available
1 2 3
X 60 40 90 600
Y 50 30 20 300 A total of 1300
Z 20 30 60 400
Total 400 500 100
required
A total of 1000
There is a difference between the total required and the total available, a difference of 300
items thus we need to create a dummy retailer number 4 so as to make the demand and supply
equal. Lets introduce a new column for a forth retailer.
CHAPTER 19 Transportation model 371
Table 38
From To Retailers Total
warehouse available
1 2 3 4
X 60 40 90 0 600
Y 50 30 20 0 300
Z 20 30 60 0 400
Total 400 500 100 300
required
We can now start the allocation by using Vogel method where we will introduce the penalties
row and columns
Table 39
From To Retailers Total Penalties
warehous available
e 1 2 3 4
X 60 40 90 0 600
Y 50 30 20 0 300
Z 20 30 60 0 400
Total 400 500 100 300
required
Penalties
By getting the difference between the two least numbers we get our penalty one that is
between the rows and column and the peck the highest as given below.
CHAPTER 19 Transportation model 372
Table 40
From To Retailers Total Penalties
warehouse available
P1
1 2 3 4
X 60 40 90 0 600 40
Y 50 30 20 0 300 200 20
1001
Z 20 30 60 0 400 20
Total 400 500 100 300
required 0
P1 30 0 401 0
Penalties
Let’s move to the next penalty disregarding the already column we have allocated and make the
second allocation using the highest penalty
Table 41
From To Retailers Total Penalties
warehouse available
P1 P1
1 2 3 4
P1 30 0 401 0
P1 30 0 0
Penalties
Using the third penalty to make our forth allocation as given below by table 42
CHAPTER 19 Transportation model 373
Table 42
From To Retailers Total Penalties
warehouse available
P1 P2 P3
1 2 3 4
P1 30 0 401 0
P2 30 0 0
Penalties
P3 303 0
Make the final two allocations starting with the highest (40) and followed by (30)
Table 43
From To Retailers Total Penalties
warehouse available
P1 P2 P3
1 2 3 4
P1 30 0 401 0
P2 30 0 0
Penalties
P3 303 0
CHAPTER 19 Transportation model 374
When you examine the final table 43 to see whether the problem is basic m + n − 1 that is
4+3-1 = 6 but the allocation that we have just made are 5 and thus mean the solution is optimal.
Practice Problem
1. Naive supermarkets have four super markets in different towns at present the four
super markets are supplied from two go downs X and Y each with a capacity of 80, 000
tons per day. It is planned to expand the supermarket so that they will require 54, 000,
50, 000, 60, 000, and 70,000 per day respectively from the go down system.
To meet this and future demand Naive of planning to third go down capable of supplying
120, 000 tons per day. Two locations are being considered the transport costs in
KES/tons from each go down to each super market are given below.
Required
Evaluate the two transportation model and decide which is the better location of new go
down. Assume all other cost are the same
3. A company has been given a tender to supply maize to four drought zones. The distance
between each grains depot and each drought zone is given below.
4. There are four areas that urgently need emergency food aid due to the effect of draught.
Government has food storage in the following towns. The amount available, the amount
needed per station together with the associated transportation costs are in the table
below.
5. Write brief notes on the meaning of the following words as used in Transportation
Problem
a) Basic Feasible Solution
b) Optimal Solution
c) Non-Degenerate Basic Feasible Solution
6. Find the initial feasible solution of the following transportation problem by Vogel’s
Approximation Method.
Test for optimality and advice the management.
i ii iii Availability
A 16 19 12 14
B 22 13 19 16
C 14 28 8 12
Requirement 10 15 17
CHAPTER 19 Transportation model 376
7. Two warehouses supply four stores. The transportation costs from the warehouses to
the stores, the availabilities at the warehouse and requirements at the stores are given
in the table below.
warehouse item
G H I J Available
1 4 3 5 6 100
2 8 2 4 7 200
Required 50 100 75 75
8. Expel Transporters has four large stores in different towns: Kisumu, Eldoret, Nakuru, and
Nairobi. At present the four are supplied from the warehouse A and B, each with a
capacity of 40 tons per day.
It is planned to expand the stores so that they will 27, 25, 30 and 35 tons per day
respectively from the warehouse system. To meet this future increases, it is planned to
build a third warehouse, capable to supplying 60 tons per day. Two locations are being
considered. The transport costs in thousands of shillings per tons from each warehouse
to each store are given below
Distance in kilometers
From Customers
Warehouse
A 70 85 55 120
B 110 90 75 110
New 2 135 95 80 75
CHAPTER 19 Transportation model 377
Evaluate the two transportation model and decide which is the better location the new
warehouse assuming all other costs are the same
CHAPTER 20 ASSIGNMENT MODEL
Objectives
At the end of this chapter the student should be able to do the following:
• Know and understand when to use the assignment model
• Know how to set up the initial assignment model table
• Be able move to the next improved table.
• Know how to recognize the optimum solution
• Deal with origin and destination
• To maximize and minimize a given a problem
Introduction
The assignment model is a special case of the transportation model in which the number of
origin must equal the number of the destination that is the table is a square that is the number
of rows and columns must be equal.
At the destination the demand is equal to one at the origin that is the supply is equal to one.
The commonly used such structure to solve such problem is specially designed solution called
Hungarian Algorithm
Hungarian Algorithm
This is a method that provides us with an efficient means of finding optimal solution without
having to make a direct comparison of every option.
The algorithm has three stages which are:
Stage I
Set out the problem in table format.
For each row in the table find the smallest row element and subtract it from every element in
the row.
Repeat the same for column.
CHAPTER 20 Assignment model 379
Stage II
For a feasible solution there must be exactly one assignment to every row and every column.
Find rows with only one zero in it and make an assignment to this zero. If no such row exists
begin with any zero.
Close out all the zeros in the same column.
Repeat number (i) and (ii) until no further progress can be made.
Stage III
If the solution in stage II is not feasible go on to stage III and follow the following steps;
Draw the minimum number of straight line through the rows and columns so that all zeros in
the table are covered and make sure that there are no diagonals.
Find the smallest element without a line through it.
Subtract this number from every element without a line through it.
Add the chosen number to every element with two lines through it.
Leave alone all the elements with one line through them.
This procedure has created at least one new zero return to the stage II and repeat the
procedure until the optimum solution is reached.
Example 20.1
A ferries manufacturer has four distribution ports and four order to deliver to separate country.
Each port has one ship available which is large enough to carry one of these ferries. The distance
between each port and each country are given below.
Tableau 1
Solution
Identify the smallest element in each row to set up the initial as tableau 2
Tableau 2
Subtract the smallest row element from the entire element in each corresponding row as given
in the tableau 3
Tableau 3
u v w x
i) 0 40 70 150
ii) 0 40 20 70
Iii) 30 70 0 100
iv) 70 50 0 50
Tableau 4
u v w x
i) 0 40 70 150
ii) 0 40 20 70
Iii) 30 70 0 100
iv) 70 50 0 50
0 40 0 50
Smallest element in each column
Subtract the smallest element from the entire element in each corresponding column as given
below by the tableau 5
Tableau 5
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
Assign to any of the row or column with one zero and to that zero that is column (x) as shown
below use square to show the assignment
CHAPTER 20 Assignment model 382
Tableau 6
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
Move to the next row or column with one zero if there is none move to the column of your
choice if it has more than one assign one and close the others in that column as shown by the
tableau 7
Tableau 7
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
Lets move to the next column (v) and assign to one zero and close the other zero as shown in
the tableau 8
Tableau 8
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
CHAPTER 20 Assignment model 383
Finally we can assign the last column (u) which have two zeros, thus we need to assign to one
zero and close the other zero as given below
Tableau 9
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
Looking at the tableau 9 we can that every row and every column has one assignment that
means that the solution is feasible and we can assign as follows
Pick the corresponding amount of mile which are in the first table tableau 2 to everywhere
there is assignment.
Assign port (i) to country (u) = 680
Assign port ii) to country (v) = 600
Assign port iii) to country (w) = 350
Assign port iv) to country (x) = 450
2080 miles
Alternative assignment
We need to assign column (u) need to assign to cell ii)u as the alternative assignment as shown
below by tableau 10
CHAPTER 20 Assignment model 384
Tableau 10
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
Assign the column (v) that is cell i)v as alternative assignment as shown below in the tableau 11
Tableau 11
u v w x
i) 0 0 70 100
ii) 0 0 20 20
Iii) 30 30 0 50
iv) 70 10 0 0
We have assigned every row and every column and the solution is feasible and we can make the
following assignments.
Example 20.2
A company has six sales region and six sales ladies from pat experience it is known that sales
lady perform differently in different region. The company sales director has established sales for
each region. She has approached you for advice in who should take which region.
Tableau 12
Required
How should the sale director assign the sales ladies to the region to maximize total sales?
Solution
The problem which involves maximization require we multiply the whole table by negative as
given below by Tableau 13
Tableau 13
After multiplying every element by negative lets identify the smallest element in each row as
given by the tableau 14
Tableau 14
Subtract the smallest element from the corresponding rows as given in the tableau 15
Tableau 15
Identify the smallest element in each column as given below by the tableau 16
CHAPTER 20 Assignment model 387
Tableau 16
Subtract the identified smallest element in each corresponding column to obtain the table
below as given by the table 17
Tableau 17
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 11 6 0 8 14
B 0 3 3 0 2 4
C 3 7 3 0 20 18
D 6 11 4 8 0 17
E 5 0 0 4 1 0
F 0 9 1 2 0 4
From the above tableau 17 we can try to assign starting with the column with one zero and see
whether we can attain a feasible region. The tableau 18 below shows the assigned elements.
CHAPTER 20 Assignment model 388
Tableau 18
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 11 6 0 8 14
B 0 3 3 0 2 4
C 3 7 3 0 20 18
D 6 11 4 8 0 17
E 5 0 0 4 1 0
F 0 9 1 2 0 4
In the above Tableau 18 we need to draw line passing through rows and columns that have
zeros and draw as minimal lines as possible as in the tableau 19
Tableau 19
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 11 6 0 8 14
B 0 3 3 0 2 4
C 3 7 3 0 20 18
D 6 11 4 8 0 17
E 5 0 0 4 1 0
F 0 9 1 2 0 4
Identify the smallest uncovered element which is 1; add 1 to every element covered by two
lines
That is where two are intersecting each other.
CHAPTER 20 Assignment model 389
Tableau 20
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 11 6 0 8 14
B 0 3 3 0 2 4
C 3 7 3 0 20 18
D 6 11 4 8 0 17
E 5+1 0 0 4+1 1+1 0
F 0 9 1 2 0 4
Subtract 1 to every element that is not covered and the other elements which lies in the line are
supposed to remain untouched as given by the tableau 21
Tableau 21
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 11-1 6-1 0 8 14-1
B 0 3-1 3-1 0 2 4-1
C 3 7-1 3-1 0 20 18-1
D 6 11-1 4-1 8 0 17-1
E 6 0 0 5 2 0
F 0 9-1 1-1 2 0 4-1
Remember that the elements that lie on the lines where there is no intersection are supposed
to remain untouched and the table on the next page shows the final table after performing the
three operations.
We try to assign and see whether we get an assignment on each row and each column as given
below by the tableau 22, starting with the row or column that has one zero.
CHAPTER 20 Assignment model 390
Tableau 22
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 10 5 0 8 13
B 0 2 2 0 2 3
C 3 6 2 0 20 17
D 6 10 3 8 0 16
E 6 0 0 5 2 0
F 0 8 0 2 0 3
From the above allocation we can see that when we try to assign zeros in the rows and columns
the solution is no feasible because one row and one column are un assigned and thus we need
to repeat the process of drawing the lines as shown in the tableau 23
Tableau 23
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 10 5 0 8 13
B 0 2 2 0 2 3
C 3 6 2 0 20 17
D 6 10 3 8 0 16
E 6 0 0 5 2 0
F 0 8 0 2 0 3
By drawing the minimum lines possible identify the smallest element which is uncovered that is
2
Repeating the above procedure add 2 to every element in the intersections of the lines as
shown in the tableau 24
CHAPTER 20 Assignment model 391
Tableau 24
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 10 5 0 8 13
B 0 2 2 0 2 3
C 3 6 2 0 20 17
D 6 10 3 8 0 16
E 6+2 0 0 5+2 2+2 0
F 0+2 8 0 2+2 0+2 3
Subtract 2 to every element that is not covered to obtain a table as the one given below in the
tableau 25
Tableau 25
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 10-2 5-2 0 8 13-2
B 0 2-2 2-2 0 2 3-2
C 3 6-2 2-2 0 20 17-2
D 6 10-2 3-2 8 0 16-2
E 8 0 0 7 4 0
F 2 8 0 4 2 3
Now after performing the three operations of adding 2, subtracting 2 and leaving untouched the
element in the lines, we can try to assign where there are zeros and see whether the solution is
feasible. Let examine the tableau 26
CHAPTER 20 Assignment model 392
Start assigning the row or column with one zero and repeat the procedure until every row and
column are assigned.
Tableau 26
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 8 3 0 8 11
B 0 0 0 0 2 1
C 3 4 0 0 20 15
D 6 8 1 8 0 14
E 8 0 0 7 4 0
F 2 8 0 4 2 3
The above solution is not feasible and we need to redraw the lines again and make sure that the
lines are as minimal as possible that are covering all the zeros that are in the tableau 26. The
tableau 27 below shows the number of lines.
Tableau 27
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 8 3 0 8 11
B 0 0 0 0 2 1
C 3 4 0 0 20 15
D 6 8 1 8 0 14
E 8 0 0 7 4 0
F 2 8 0 4 2 3
Identify the smallest uncovered element which is 2 and add 2 to where our lines are intersecting
As in the tableau 28 below
CHAPTER 20 Assignment model 393
Tableau 28
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8 8 3 0 8 11
B 0 0 0+2 0+2 2+2 1
C 3 4 0 0 20 15
D 6 8 1 8 0 14
E 8 0 0+2 7+2 4+2 0
F 2 8 0 4 2 3
Subtract 2 from the uncovered elements and elements that are covered except those that are in
the intersection will remain untouched see tableau 29
Tableau 29
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 8-2 8-2 3 0 8 11-2
B 0 0 2 2 4 1
C 3-2 4-2 0 0 20 15-2
D 6-2 8-2 1 8 0 14-2
E 8 0 2 9 6 0
F 2-2 8-2 0 4 2 3-2
A summary for the operation is as in the tableau 30 and let try to assign and see whether the
solution is feasible
CHAPTER 20 Assignment model 394
Tableau 30
Sales Nyanza Rift Nairobi Eastern Mt. Costal
lady Valley Kenya
A 6 6 3 0 8 9
B 0 0 2 2 4 1
C 1 2 0 0 20 13
D 6 6 1 8 0 12
E 8 0 2 9 6 0
F 0 6 0 4 2 1
The solution is feasible since when you look at every column and row it is assigned and we need
to allocate as follows
Example 20.3
A wood working firm employs six joiners, each joiner has different ability and skills and takes a
different amount of time to do each job at present. There are five joiners to be allocated the
time as given below.
Tableau 31
Required
The joiner has to be assigned one job. How this should be done in order to minimize the total
man time needed to finish all the jobs.
S
Solution
We must establish a dummy job and get the smallest element on each row as given below by
tableau 32
Tableau 32
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 25 16 15 14 13 0
Joiner2 25 17 18 23 15 0
Joiner3 30 15 20 19 14 0
Joiner4 27 20 22 25 12 0
Joiner5 29 19 17 32 10 0
Joiner6 34 19 24 32 15 0
The smallest values in each row are zero and that will not change our table very much .
We get the smallest value in each column by just picking from the column and write them below
the table as shown by tableau 33
Tableau 33
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 25 16 15 14 13 0
Joiner2 25 17 18 23 15 0
Joiner3 30 15 20 19 14 0
Joiner4 27 20 22 25 12 0
Joiner5 29 19 17 32 10 0
Joiner6 34 19 24 32 15 0
25 15 15 14 10 0
CHAPTER 20 Assignment model 396
Get the differences from each element in the column by subtracting the difference with the
element corresponding with the columns as in tableau 34
Tableau 34
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 0
Joiner2 0 2 3 9 5 0
Joiner3 5 0 5 5 4 0
Joiner4 2 5 7 11 2 0
Joiner5 4 4 2 18 0 0
Joiner6 9 4 9 18 5 0
We can try to assign and see whether we can get a feasible solution as given in the tableau 35
Tableau 35
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 0
Joiner2 0 2 3 9 5 0
Joiner3 5 0 5 5 4 0
Joiner4 2 5 7 11 2 0
Joiner5 4 4 2 18 0 0
Joiner6 9 4 9 18 5 0
The solution above is not feasible because one row and column has not been assigned and we
need to introduce lines as given by tableau 36
CHAPTER 20 Assignment model 397
Tableau 36
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 0
Joiner2 0 2 3 9 5 0
Joiner3 5 0 5 5 4 0
Joiner4 2 5 7 11 2 0
Joiner5 4 4 2 18 0 0
Joiner6 9 4 9 18 5 0
This has been accomplished by drawing 5 lines making sure that all the zeros are covered as
given in the tableau 36 above
Identify the smallest value which is not covered which in our case is 2, add 2 to where the lines
are intersecting and subtract 2 to the elements which are not covered and let the other
elements which are covered remain the way they are except the operation we have done in the
intersection. See a summary in tableau 37
Tableau 37
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 2
Joiner2 0 2 3 9 5 2
Joiner3 5 0 5 5 4 2
Joiner4 0 3 5 9 0 0
Joiner5 4 4 2 18 0 2
Joiner6 7 2 7 16 3 0
Let try assign and see whether we can achieve a feasible solution as given by the tableau 38
CHAPTER 20 Assignment model 398
Tableau 38
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 2
Joiner2 0 2 3 9 5 2
Joiner3 5 0 5 5 4 2
Joiner4 0 3 5 9 0 0
Joiner5 4 4 2 18 0 2
Joiner6 7 2 7 16 3 0
The solution is not feasible and we need to repeat the same procedure of drawing as minimal as
possible number of lines as given in the tableau 39 below
Tableau 39
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 0 1 0 0 3 2
Joiner2 0 2 3 9 5 2
Joiner3 5 0 5 5 4 2
Joiner4 0 3 5 9 0 0
Joiner5 4 4 2 18 0 2
Joiner6 7 2 7 16 3 0
By identifying the smallest element value in our case we have 3 as the smallest element value
from the uncovered elements.
Lets add 3 to where the lines are intersecting, subtract 3 to the elements that are uncovered
and the rest that lie along the lines remain untouched. See tableau 40
CHAPTER 20 Assignment model 399
Tableau 40
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 3 4 0 0 3 5
Joiner2 0 2 1 6 2 2
Joiner3 5 0 2 2 1 2
Joiner4 3 6 5 9 0 3
Joiner5 7 7 2 18 0 5
Joiner6 7 2 4 13 0 0
Let’s try to assign and see whether we can get a feasible solution as shown in the tableau 41
Tableau 41
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 3 4 0 0 3 5
Joiner2 0 2 1 6 2 2
Joiner3 5 0 2 2 1 2
Joiner4 3 6 5 9 0 3
Joiner5 7 7 2 18 0 5
Joiner6 7 2 4 13 0 0
The allocation is not feasible and we required again repeating the same process until we can
achieve an optimal solution and we begin by drawing lines as minimal as possible as given by
the tableau 42
CHAPTER 20 Assignment model 400
Tableau 42
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 3 4 0 0 3 5
Joiner2 0 2 1 6 2 2
Joiner3 5 0 2 2 1 2
Joiner4 3 6 5 9 0 3
Joiner5 7 7 2 18 0 5
Joiner6 7 2 4 13 0 0
Identify the smallest element value that is not covered that is 1, add 1 to where the lines are
intersecting and subtract 1 to the elements that are not covered and leave the rest that are
lying along the lines untouched.
See the tableau 43
Tableau43
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 4 5 0 0 4 5
Joiner2 0 2 0 5 2 1
Joiner3 5 0 1 1 1 1
Joiner4 3 6 4 8 0 2
Joiner5 7 7 1 17 0 4
Joiner6 8 3 4 13 1 0
Assign the to see whether the solution is feasible and remember to assign only one zero at
every column and row and when there are more than one zero in the column close the rest
remaining zeros to avoiding assign more than time in each column.
See tableau 44
CHAPTER 20 Assignment model 401
Tableau 44
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 4 5 0 0 4 5
Joiner2 0 2 0 5 2 1
Joiner3 5 0 1 1 1 1
Joiner4 3 6 4 8 0 2
Joiner5 7 7 1 17 0 4
Joiner6 8 3 4 13 1 0
Again our allocation is no feasible and we need to identify the number of lines that covers our
zeros as shown in the tableau 45 below
Tableau 44
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 4 5 0 0 4 5
Joiner2 0 2 0 5 2 1
Joiner3 5 0 1 1 1 1
Joiner4 3 6 4 8 0 2
Joiner5 7 7 1 17 0 4
Joiner6 8 3 4 13 1 0
The smallest element value is 1 and where there is intersection we need to add 1 and subtract 1
where there are elements that are no covered and leave the rest an touched as we are familiar
with these procedure as summary is given below.
See tableau 45
CHAPTER 20 Assignment model 402
Tableau 45
Job 1 Job 2 Job 3 Job 4 Job 5 Job 6
Joiner1 4 6 0 0 5 6
Joiner2 0 3 0 5 3 2
Joiner3 4 0 0 0 1 1
Joiner4 2 6 3 7 0 2
Joiner5 6 7 0 16 0 4
Joiner6 7 3 3 12 1 0
The solution above in tableau 45 is a feasible one because every row and column have been
assigned and thus we need make the assignment to joiners to see which job they are going to
take.
Practice Problem
1. A company has four distribution depots and four orders to be delivered to separate
customers. Each depot has one lorry available which is large enough to carry one of
these orders. The distance between each depot and each customer is given below.
CHAPTER 20 Assignment model 403
Distance in kilometers
Depot Customers
A 68 72 75 83
B 56 60 58 63
C 38 40 35 45
D 47 42 40 45
a) How should be the order assigned to the depot in order to minimize the total
distance traveled, use Hungarian algorithm.
b) Calculate the minimum distance to be covered.
Firms Sub-stations
A B C D
DTL 5 6 8 10
KDL 18 14 12 16
EXL 10 13 14 12
ZAP 13 10 10 16
MINT 14 11 11 10
3. Duport Ltd has 6 sales region and 6 sales representatives. From past experience it is
known that the sales representatives perform differently in the different areas. The
company’s. Sales Director has estimated from each sales person in each area. These are
given in the table below.
How should the Sales Director assign the salesmen to the areas to maximize total sales?
5. The wood working firm, Crestwood Ltd, employs six joiners. Each man has different
abilities and skills and takes a different amount of time to do each job. At present,
there are five jobs to be allocated. The times are given below:
Man 1 25 16 15 14 13
Man 2 25 17 18 23 15
Man 3 30 15 20 19 14
Man 4 27 20 22 25 12
Man 5 29 19 17 32 10
a) The jobs have to be assigned one job to one man. How should this be done in
order to minimize the total man-time needed to finish all of the jobs?
6. ANU Computer Information System (CIS) has five expert programmers. The CIS needs
five application programs to be developed. The head of the computer information
system, after studying the programs to be developed, estimates the computer time in
minutes by the experts for the application programs as follows.
Programmers
D 50 50 80 80 150
E 55 35 70 80 105
How would you assign the programs to the programmers in order to attain minimum
total computer time?
21
INVENTORY PLANNING &
CHAPTER CONTROL
Objectives
At the end of this chapter the student should be able to do the following:
Introduction
One of the consequences of changes in the economic climate is that manufacturing companies
have hard to review their policies to wants the holding and control of stocks that is both raw
materials and finished goods.
When a company that is holding stock of goods capital is tied up in the goods. This unusable
capital represents a cost to the company in the form of lost interest or investment
opportunities.
In addition the stock held will incur cost inform of storage chart personnel employed to manage
it, insurance etc.
A stock model is therefore necessary for any for any organization to help the decision makers to
determine how much to order and in production how much to produce.
The objective of the decision as to minimize the total cost associated with the holding of the
stock.
CHAPTER 21 Inventory planning and control 407
Figure 1
Order size
Re-order
Stock level
level
Lead time
Stock out
In any stock system the stock level will vary over time in cyclical patterns. The pattern of the
demand will dictate how the stock level drop at same point an order will be passed to replenish
the stock after an erupt of time known as the lead time the order will arrive and stock level will
instantly increase and now stock circle will begin.
Assumptions of EOQ
Economic order quantity (EOQ) being one of the oldest and the most commonly known
inventory techniques is still in use to today because it is easy to use but however it has several
assumptions.
1) The demand for the item is constant or approximately constant if the rate of usage is
constant.
2) The lead time also known and is constant
3) Receipt of inventory is instantaneous.
4) Cost per unit is constant throughout the year
5) The only variable cost is the cost placing an order that is ordering cost.
6) Orders are placed so that there are no shortages that are no stock outs permitted
CHAPTER 21 Inventory planning and control 408
Figure 2
Order size
Re-order
Stock level
level
Time
Lead time
D
If D items are required per year and they are ordered in batches of (q) then orders will
q
needed each year.
Annual cost of ordering = Cost of placing order × number of orders placed
The cost of placing order is given by Co
Thus the annual cost of ordering will be expressed as follows
= Co × D
Annual cost of ordering
q
This cost is based on the average amount held in stock over a single stock cycle. In simple
situation the stock level varies linearly from (q) to zero and therefore the average stock is
expressed as follows.
q+0 q
Average stock
= =
2 2
Hence the annual cost of hold the stock = Cost of holding unit for a year × Average stock held
CHAPTER 21 Inventory planning and control 409
= Ch × q
Annual cost of holding the stock
2
The total cost is given by adding all the costs and the costs that we have are the annual cost
ordering and annual cost of holding the stock.
Total cost = annual cost of ordering + annual cost of holding the stock
= Co × D
Given that annual cost of ordering
q
and
= Ch × q
annual cost of holding the stock
2
We can express the total cost as follows
TC = Co × D + Ch × q
q 2
CoD Chq
TC
= +
q 2
Example 21.1
CoD Chq
Total cost =
TC +
q 2
The order quantity at minimum can bbe obtained by getting the derivative of the total cost in
respect to the stock (q)
CoD Chq
=TC +
q 2
dTC 1
= CoDq −1 + Chq
dq 2
1
= CoDq −1−1 + Chq1−1
2
1
= CoDq −2 + Chq 0
2
CoD Ch
= +
q2 2
dTC
When TC takes its minimum value when = 0 or when the second derivative is negative that
dq
d 2TC
is less than zero => 0
dq 2
Let us equate our derivative to its minimum that is zero.
CoD Ch
+ = 0
q2 2
And using the above we can the value of (q) or in other words making (q) the subject of the
above equation.
CoD Ch
=
q2 2
2
Cross multiply q by Cho and 2 by CoD
2CoD = q 2Ch
CHAPTER 21 Inventory planning and control 411
2CoD
= q2
Ch
2CoD
= q2
Ch
2.Co.D
q=
Ch
This optimum order quantity is known as the economic order quantity (EOQ). If this quantity is
ordered at regularly intervals through the year then the total cost of holding stocks will take its
minimum value.
2.Co.D
EOQ or (qo ) =
Ch
Example 21.2
A supermarket sells 500, 000 bars of soap annually the demand is spread evenly over the year.
The purchase for each bar is KES 40 .It cost the proprietor KES 20, 000 to place an order .the
supplier lead time is 12 working days.
The holding cost is to be 20% per year of the average stock value.
a) How many bars should be ordered at time if he wishes to minimize his total stocking
cost.
b) Determining how often the order should be placed and re-order level.
c) Assume that the shop is open for 300 days a year and a week is 6 days.
Solution
Let D = 500, 000
Co = 20, 000
= 20
Ch × 40
= 8
100
CHAPTER 21 Inventory planning and control 412
2CoD
EOQ =
Ch
2 × 20, 000 × 50, 000
=
8
= 2,500, 000, 000
= 50, 000
Taking D = 500,000 and since we have already gotten our q = 50, 000 we can get how often he
can order in a given year.
D 500, 000
= = 10 Times
q 50, 000
Within a year he should order 10 times and the shop operates for 300 days a year and thus we
can calculate the duration that the shops before it orders.
300
= 30 Days
10
Company’s which produce a number of different lines may organize their production on batch
bases rather than questions one e.g. coke may decide to make coke in the morning, sprite in the
middle morning and Fanta in the afternoon.
When the batch production is used the company has to decide how large a batch to make at
time and how often to make a batch of particular product the problem is similar to the
economic order quantity.
The ordering of a fixed quantity from an outside supplier is replaced by the [production of a
fixed amount the ordering cost is therefore replaced by the set up costs (Cs).
D q
TC Cs
= + Ch
q 2
2.Cs.D
EBQ or (qo ) =
Ch
Example 21.3
XYZ produces several brands of soft drinks these soft drinks are made on a batch production
bases at rate of 50, 000 bottle per day the demand for the most popular soft drink coke is 30,
000, 000 per year spread evenly offer the year.
Whenever a batch of coke is to be made a set up cost of KES 1, 000, 000 are incurred the
company estimate that the annual cost of holding this soft drink is KES 7.50 per bottle.
Assuming that the information given concern 300ml bottle only
How many bottles should they produce in batch if they wish to minimize the total annual cost of
production and holding?
How often should there be a production to run and how long will it last.
Assume the year has 300 days
Solution
Considering the following given information D = 30, 000, 000
Cs = 1, 000, 000
Ch = 7.50
2.Cs.D
EBQ or (qo ) =
Ch
= 2,828, 428
D q
TC Cs
= + Ch
q 2
CHAPTER 21 Inventory planning and control 414
1, 000, 000 × 30, 000, 000 7.5 × 2,828, 428
= +
2,828, 428 2
q
How long will it last =
Daily demand
2,828, 428
= = 56.7
50, 000
In the situation examined so far it has assumed that the stock count is not permitted. There may
be occasion in which it is cheaper to go out of stock than to carry the size of stock needed to
avoid stock count.
Suppose a machine produces a batch of component some of which pass directly to slower
machine for immediate use the rest on stock until needed by second machine.
Instead of arriving all together and stock holding jumping firm (0 – q) the stock increase steady
during the time for which the first machines is producing and then decreases as the second
machine uses up the stock let the rate of production be P and usage be D P ≥ D
If the production cycle last for a year then the total quantity produced during a cycle is given by
Pt
q = Pt
Batch produced
When we differentiate the above equation at its minimum we will get the following equation
D (P - D)q
TC = Cs + Ch
q 2P
2CsD. P
q=
Ch (P - D)
Example 21.4
A machine manufactures spare parts at the rate of 20, 000 per month. A second machine uses
those spare parts at the rate 50, 000 per month and remainder put into stock.
It cost KES100, 000 to set up the machine the company establish their stock hold costs 20% per
annum of the average stock value each parts costs KES 250 to make.
Required
What batch size should be produced on the first machine and what frequency.
Calculate the total variable cost of production
If the set up cost could be reduced to KES 25, 000 how mould changes affects answer (i) and (ii)
Solution
Taking Cs = 100, 000
Ch = 250 × 20% = 50
= 17,889
Frequency
17,889 1
= 3 months
60, 000 2
D (P - D)q
TC = Cs + Ch
q 2P
60, 000 50(240, 000 − 60, 0000
100, 000 × +
17,889 2 × 240, 000
335, 402 + 18.75
= 335, 420.75
CHAPTER 21 Inventory planning and control 417
2CoD Ch + Cb
q=
Ch Cb
Example 21.5
Supper electronic ltd an independently tailor of electronic and audio equipment One of their
most popular iPod the demand is for 2000 a year spreading evenly over the year. These items
cost the company KES 25, 000 to buy directly from the manufacturer the cost of placing an
order is KES 125, 000 and the cost of holding the iPods in stock is charge at 15% per year of the
average stock value.
The manager is considering the stocks held of these items in order to help improve customer
cash flow.
He has established that the cost of administering an out of stock ordering system together with
a charge for many lost sales and loss of good will amount KES 2000 per iPod per year.
a) Determine the value of total variable cost of stock the iPod if stock out are not
permitted.
b) How much could be saved if a system of planned shortages was introduced
Solution
Given that
CHAPTER 21 Inventory planning and control 418
D = 2000
Co = 125, 000
Ch = 15 ×125, 000 =
3750
100
2CoD
EOQ = q =
Ch
D q
TC = Co + Ch
q 2
2000 365.1
= 125, 000 × + 3750 ×
365.1 2
= 684743.9 + 684562.5
= 1,369,306.4
2CoD Ch+Cb
q =
Ch Cb
= 133,333.333 × 2.875
= 383,332
CHAPTER 21 Inventory planning and control 419
= 619
22
D q − s CbS
TC =
Co + Ch +
Ch Cb 2q
2CoD Ch
S is given by:
Ch Ch + Cb
2 2
D q - s CbS
TC = Co + Ch +
Ch Cb 2q
2CoD Ch
S is given by
Ch Ch + Cb
Practice Problem
1. Telfix Ltd is a mobile phone company. The demand for the phone is
12,500 per annum. Telfix buy the phones for KES 900 each. The ordering
costs are KES 15,000 per order and the stock costs are KES 30 per phone
per annum.
a) Calculate the optimum order quantity.
b) Currently the company is ordering in batches of 300 phones.
How much will they save each year if they change to the order
quantity found in part (a)
3. Megafix Ltd retails Kodax camera in Kenya. On its line is Kodax 10.0
special. The demand for the camera is 6 per week. Megafix buys the
camera for KES 20,000 each. The ordering costs are KES 1.2 million per
order and the stockholding costs are KES 1000 per camera of average
stock per year plus 15% per annum of the average stock value. Assume
50 weeks per year.
a) What is the optimum order quantity
b) Currently Megafix Ltd is ordering in batches of 500 cameras.
How much money will they save each year if they change to
order quantity found in (a) above.
APPENDICES 421
z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
-3.4 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0002
-3.3 0.0005 0.0005 0.0005 0.0004 0.0004 0.0004 0.0004 0.0004 0.0004 0.0003
-3.2 0.0007 0.0007 0.0006 0.0006 0.0006 0.0006 0.0006 0.0005 0.0005 0.0005
-3.1 0.0010 0.0009 0.0009 0.0009 0.0008 0.0008 0.0008 0.0008 0.0007 0.0007
-3.0 0.0013 0.0013 0.0013 0.0012 0.0012 0.0011 0.0011 0.0011 0.0010 0.0010
-2.9 0.0019 0.0018 0.0018 0.0017 0.0016 0.0016 0.0015 0.0015 0.0014 0.0014
-2.8 0.0026 0.0025 0.0024 0.0023 0.0023 0.0022 0.0021 0.0021 0.0020 0.0019
-2.7 0.0035 0.0034 0.0033 0.0032 0.0031 0.0030 0.0029 0.0028 0.0027 0.0026
-2.6 0.0047 0.0045 0.0044 0.0043 0.0041 0.0040 0.0039 0.0038 0.0037 0.0036
-2.5 0.0062 0.0060 0.0059 0.0057 0.0055 0.0054 0.0052 0.0051 0.0049 0.0048
-2.4 0.0082 0.0080 0.0078 0.0075 0.0073 0.0071 0.0069 0.0068 0.0066 0.0064
-2.3 0.0107 0.0104 0.0102 0.0099 0.0096 0.0094 0.0091 0.0089 0.0087 0.0084
-2.2 0.0139 0.0136 0.0132 0.0129 0.0125 0.0122 0.0119 0.0116 0.0113 0.0110
-2.1 0.0179 0.0174 0.0170 0.0166 0.0162 0.0158 0.0154 0.0150 0.0146 0.0143
-2.0 0.0228 0.0222 0.0217 0.0212 0.0207 0.0202 0.0197 0.0192 0.0188 0.0183
-1.9 0.0287 0.0281 0.0274 0.0268 0.0262 0.0256 0.0250 0.0244 0.0239 0.0233
-1.8 0.0359 0.0351 0.0344 0.0336 0.0329 0.0322 0.0314 0.0307 0.0301 0.0294
-1.7 0.0446 0.0436 0.0427 0.0418 0.0409 0.0401 0.0392 0.0384 0.0375 0.0367
-1.6 0.0548 0.0537 0.0526 0.0516 0.0505 0.0495 0.0485 0.0475 0.0465 0.0455
-1.5 0.0668 0.0655 0.0643 0.0630 0.0618 0.0606 0.0594 0.0582 0.0571 0.0559
-1.4 0.0808 0.0793 0.0778 0.0764 0.0749 0.0735 0.0721 0.0708 0.0694 0.0681
-1.3 0.0968 0.0951 0.0934 0.0918 0.0901 0.0885 0.0869 0.0853 0.0838 0.0823
-1.2 0.1151 0.1131 0.1112 0.1093 0.1075 0.1056 0.1038 0.1020 0.1003 0.0985
-1.1 0.1357 0.1335 0.1314 0.1292 0.1271 0.1251 0.1230 0.1210 0.1190 0.1170
-1.0 0.1587 0.1562 0.1539 0.1515 0.1492 0.1469 0.1446 0.1423 0.1401 0.1379
-0.9 0.1841 0.1814 0.1788 0.1762 0.1736 0.1711 0.1685 0.1660 0.1635 0.1611
-0.8 0.2119 0.2090 0.2061 0.2033 0.2005 0.1977 0.1949 0.1922 0.1894 0.1867
-0.7 0.2420 0.2389 0.2358 0.2327 0.2296 0.2266 0.2236 0.2206 0.2177 0.2148
-0.6 0.2743 0.2709 0.2676 0.2643 0.2611 0.2578 0.2546 0.2514 0.2483 0.2451
-0.5 0.3085 0.3050 0.3015 0.2981 0.2946 0.2912 0.2877 0.2843 0.2810 0.2776
-0.4 0.3446 0.3409 0.3372 0.3336 0.3300 0.3264 0.3228 0.3192 0.3156 0.3121
-0.3 0.3821 0.3783 0.3745 0.3707 0.3669 0.3632 0.3594 0.3557 0.3520 0.3483
-0.2 0.4207 0.4168 0.4129 0.4090 0.4052 0.4013 0.3974 0.3936 0.3897 0.3859
-0.1 0.4602 0.4562 0.4522 0.4483 0.4443 0.4404 0.4364 0.4325 0.4286 0.4247
0.0 0.5000 0.4960 0.4920 0.4880 0.4840 0.4801 0.4761 0.4721 0.4681 0.4641
APPENDICES 422
Standard Normal Cumulative Probability Table
Cumulative probabilities for POSITIVE z-values are shown in the following
table: Z
z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0. 5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990
3.1 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993 0.9993
3.2 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.3 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997
3.4 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9998
APPENDICES 423
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score.
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
-3.9 .00005 .00005 .00004 .00004 .00004 .00004 .00004 .00004 .00003 .00003
-3.8 .00007 .00007 .00007 .00006 .00006 .00006 .00006 .00005 .00005 .00005
-3.7 .00011 .00010 .00010 .00010 .00009 .00009 .00008 .00008 .00008 .00008
-3.6 .00016 .00015 .00015 .00014 .00014 .00013 .00013 .00012 .00012 .00011
-3.5 .00023 .00022 .00022 .00021 .00020 .00019 .00019 .00018 .00017 .00017
-3.4 .00034 .00032 .00031 .00030 .00029 .00028 .00027 .00026 .00025 .00024
-3.3 .00048 .00047 .00045 .00043 .00042 .00040 .00039 .00038 .00036 .00035
-3.2 .00069 .00066 .00064 .00062 .00060 .00058 .00056 .00054 .00052 .00050
-3.1 .00097 .00094 .00090 .00087 .00084 .00082 .00079 .00076 .00074 .00071
-3.0 .00135 .00131 .00126 .00122 .00118 .00114 .00111 .00107 .00104 .00100
-2.9 .00187 .00181 .00175 .00169 .00164 .00159 .00154 .00149 .00144 .00139
-2.8 .00256 .00248 .00240 .00233 .00226 .00219 .00212 .00205 .00199 .00193
-2.7 .00347 .00336 .00326 .00317 .00307 .00298 .00289 .00280 .00272 .00264
-2.6 .00466 .00453 .00440 .00427 .00415 .00402 .00391 .00379 .00368 .00357
-2.5 .00621 .00604 .00587 .00570 .00554 .00539 .00523 .00508 .00494 .00480
-2.4 .00820 .00798 .00776 .00755 .00734 .00714 .00695 .00676 .00657 .00639
-2.3 .01072 .01044 .01017 .00990 .00964 .00939 .00914 .00889 .00866 .00842
-2.2 .01390 .01355 .01321 .01287 .01255 .01222 .01191 .01160 .01130 .01101
-2.1 .01786 .01743 .01700 .01659 .01618 .01578 .01539 .01500 .01463 .01426
-2.0 .02275 .02222 .02169 .02118 .02068 .02018 .01970 .01923 .01876 .01831
-1.9 .02872 .02807 .02743 .02680 .02619 .02559 .02500 .02442 .02385 .02330
-1.8 .03593 .03515 .03438 .03362 .03288 .03216 .03144 .03074 .03005 .02938
-1.7 .04457 .04363 .04272 .04182 .04093 .04006 .03920 .03836 .03754 .03673
-1.6 .05480 .05370 .05262 .05155 .05050 .04947 .04846 .04746 .04648 .04551
-1.5 .06681 .06552 .06426 .06301 .06178 .06057 .05938 .05821 .05705 .05592
-1.4 .08076 .07927 .07780 .07636 .07493 .07353 .07215 .07078 .06944 .06811
-1.3 .09680 .09510 .09342 .09176 .09012 .08851 .08691 .08534 .08379 .08226
-1.2 .11507 .11314 .11123 .10935 .10749 .10565 .10383 .10204 .10027 .09853
-1.1 .13567 .13350 .13136 .12924 .12714 .12507 .12302 .12100 .11900 .11702
-1.0 .15866 .15625 .15386 .15151 .14917 .14686 .14457 .14231 .14007 .13786
-0.9 .18406 .18141 .17879 .17619 .17361 .17106 .16853 .16602 .16354 .16109
-0.8 .21186 .20897 .20611 .20327 .20045 .19766 .19489 .19215 .18943 .18673
-0.7 .24196 .23885 .23576 .23270 .22965 .22663 .22363 .22065 .21770 .21476
-0.6 .27425 .27093 .26763 .26435 .26109 .25785 .25463 .25143 .24825 .24510
-0.5 .30854 .30503 .30153 .29806 .29460 .29116 .28774 .28434 .28096 .27760
-0.4 .34458 .34090 .33724 .33360 .32997 .32636 .32276 .31918 .31561 .31207
-0.3 .38209 .37828 .37448 .37070 .36693 .36317 .35942 .35569 .35197 .34827
-0.2 .42074 .41683 .41294 .40905 .40517 .40129 .39743 .39358 .38974 .38591
-0.1 .46017 .45620 .45224 .44828 .44433 .44038 .43644 .43251 .42858 .42465
-0.0 .50000 .49601 .49202 .48803 .48405 .48006 .47608 .47210 .46812 .46414
APPENDICES 424
Standard Normal Distribution: Table Values Represent AREA to the LEFT of the Z score.
Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 .50000 .50399 .50798 .51197 .51595 .51994 .52392 .52790 .53188 .53586
0.1 .53983 .54380 .54776 .55172 .55567 .55962 .56356 .56749 .57142 .57535
0.2 .57926 .58317 .58706 .59095 .59483 .59871 .60257 .60642 .61026 .61409
0.3 .61791 .62172 .62552 .62930 .63307 .63683 .64058 .64431 .64803 .65173
0.4 .65542 .65910 .66276 .66640 .67003 .67364 .67724 .68082 .68439 .68793
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
0.6 .72575 .72907 .73237 .73565 .73891 .74215 .74537 .74857 .75175 .75490
0.7 .75804 .76115 .76424 .76730 .77035 .77337 .77637 .77935 .78230 .78524
0.8 .78814 .79103 .79389 .79673 .79955 .80234 .80511 .80785 .81057 .81327
0.9 .81594 .81859 .82121 .82381 .82639 .82894 .83147 .83398 .83646 .83891
1.0 .84134 .84375 .84614 .84849 .85083 .85314 .85543 .85769 .85993 .86214
1.1 .86433 .86650 .86864 .87076 .87286 .87493 .87698 .87900 .88100 .88298
1.2 .88493 .88686 .88877 .89065 .89251 .89435 .89617 .89796 .89973 .90147
1.3 .90320 .90490 .90658 .90824 .90988 .91149 .91309 .91466 .91621 .91774
1.4 .91924 .92073 .92220 .92364 .92507 .92647 .92785 .92922 .93056 .93189
1.5 .93319 .93448 .93574 .93699 .93822 .93943 .94062 .94179 .94295 .94408
1.6 .94520 .94630 .94738 .94845 .94950 .95053 .95154 .95254 .95352 .95449
1.7 .95543 .95637 .95728 .95818 .95907 .95994 .96080 .96164 .96246 .96327
1.8 .96407 .96485 .96562 .96638 .96712 .96784 .96856 .96926 .96995 .97062
1.9 .97128 .97193 .97257 .97320 .97381 .97441 .97500 .97558 .97615 .97670
2.0 .97725 .97778 .97831 .97882 .97932 .97982 .98030 .98077 .98124 .98169
2.1 .98214 .98257 .98300 .98341 .98382 .98422 .98461 .98500 .98537 .98574
2.2 .98610 .98645 .98679 .98713 .98745 .98778 .98809 .98840 .98870 .98899
2.3 .98928 .98956 .98983 .99010 .99036 .99061 .99086 .99111 .99134 .99158
2.4 .99180 .99202 .99224 .99245 .99266 .99286 .99305 .99324 .99343 .99361
2.5 .99379 .99396 .99413 .99430 .99446 .99461 .99477 .99492 .99506 .99520
2.6 .99534 .99547 .99560 .99573 .99585 .99598 .99609 .99621 .99632 .99643
2.7 .99653 .99664 .99674 .99683 .99693 .99702 .99711 .99720 .99728 .99736
2.8 .99744 .99752 .99760 .99767 .99774 .99781 .99788 .99795 .99801 .99807
2.9 .99813 .99819 .99825 .99831 .99836 .99841 .99846 .99851 .99856 .99861
3.0 .99865 .99869 .99874 .99878 .99882 .99886 .99889 .99893 .99896 .99900
3.1 .99903 .99906 .99910 .99913 .99916 .99918 .99921 .99924 .99926 .99929
3.2 .99931 .99934 .99936 .99938 .99940 .99942 .99944 .99946 .99948 .99950
3.3 .99952 .99953 .99955 .99957 .99958 .99960 .99961 .99962 .99964 .99965
3.4 .99966 .99968 .99969 .99970 .99971 .99972 .99973 .99974 .99975 .99976
3.5 .99977 .99978 .99978 .99979 .99980 .99981 .99981 .99982 .99983 .99983
3.6 .99984 .99985 .99985 .99986 .99986 .99987 .99987 .99988 .99988 .99989
3.7 .99989 .99990 .99990 .99990 .99991 .99991 .99992 .99992 .99992 .99992
3.8 .99993 .99993 .99993 .99994 .99994 .99994 .99994 .99995 .99995 .99995
3.9 .99995 .99995 .99996 .99996 .99996 .99996 .99996 .99996 .99997 .99997
APPENDICES 425
Time Value of Money
Present Value of Annuity Factors
n/r 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 .9901 .9804 .9709 .9615 .9524 .9434 .9346 .9259 .9174 .9091
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908
6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553
7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684
8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349
9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590
10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446
11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951
12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137
13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034
14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667
15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061
16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237
17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216
18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014
19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649
20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136
21 18.8570 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355 10.0168 9.2922 8.6487
22 19.6604 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612 10.2007 9.4424 8.7715
23 20.4558 18.2922 16.4436 14.8568 13.4886 12.3034 11.2722 10.3711 9.5802 8.8832
24 21.2434 18.9139 16.9355 15.2470 13.7986 12.5504 11.4693 10.5288 9.7066 8.9847
25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 8.0770
26 22.7952 20.1210 17.8768 15.9828 14.3752 13.0032 11.8258 10.8100 9.9290 9.1609
27 23.5596 20.7069 18.3270 16.3296 14.6430 13.2105 11.9867 10.9352 10.0266 9.2372
28 24.3164 21.2813 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 10.1161 9.3066
29 25.0658 21.8444 19.1885 16.9837 15.1411 13.5907 12.2777 11.1584 10.1983 9.3696
30 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269
31 26.5423 22.9377 20.0004 17.5885 15.5928 13.9291 12.5318 11.3498 10.3428 9.4790
32 27.2696 23.4683 20.3888 17.8736 15.8027 14.0840 12.6466 11.4350 10.4062 9.5264
33 27.9897 23.9886 20.7658 18.1476 16.0025 14.2302 12.7538 11.5139 10.4644 9.5694
34 28.7027 24.4986 21.1318 18.4112 16.1929 14.3681 12.8540 11.5869 10.5178 9.6086
35 29.4086 24.9986 21.4872 18.6646 16.3742 14.4982 12.9477 11.6546 10.5668 9.6442
36 30.1075 25.4888 21.8323 18.9083 16.5469 14.6210 13.0352 11.7172 10.6118 9.6765
37 30.7995 25.9695 22.1672 19.1426 16.7113 14.7368 13.1170 11.7752 10.6530 9.7059
38 31.4847 26.4406 22.4925 19.3679 16.8679 14.8460 13.1935 11.8289 10.6908 9.7327
39 32.1630 26.9026 22.8082 19.5845 17.0170 14.9491 13.2649 11.8786 10.7255 9.7570
40 32.8347 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791
41 33.4997 27.7995 23.4124 19.9931 17.2944 15.1380 13.3941 11.9672 10.7866 9.7991
42 34.1581 28.2348 23.7014 20.1856 17.4232 15.2245 13.4524 12.0067 10.8134 9.8174
43 34.8100 28.6616 23.9819 20.3708 17.5459 15.3062 13.5070 12.0432 10.8380 9.8340
44 35.4555 29.0800 24.2543 20.5488 17.6628 15.3832 13.5579 12.0771 10.8605 9.8491
45 36.0945 29.4902 24.5187 20.7200 17.7741 15.4558 13.6055 12.1084 10.8812 9.8628
46 36.7272 29.8923 24.7754 20.8847 17.8801 15.5244 13.6500 12.1374 10.9002 9.8753
47 37.3537 30.2866 25.0247 21.0429 17.9810 15.5890 13.6916 12.1643 10.9176 9.8&66
48 37.9740 30.6731 25.2667 21.1951 18.0772 15.6500 13.7305 12.1891 10.9336 9.8969
49 38.5881 31.0521 25.5017 21.3415 18.1687 15.7076 13.7668 12.2122 10.9482 9.9063
50 39.1961 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148
APPENDICES 426
Time Value of Money
Present Value of Annuity Factors
n/r 11% 12% 13% 14% 15% 16% 17% 18% 19%
1 .9009 .8929 .8850 .8772 .8696 .8621 .8547 .8475 .8403
2 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465
3 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399
4 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386
5 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576
6 4.2305 4.1114 3.9976 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098
7 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057
8 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544
9 5.5370 5.3283 5.1317 4.9464 4.7716 4.6065 4.4506 4.3030 4.1633
10 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389
11 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.8364 4.6560 4.4865
12 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.9884 4.7932 4.6105
13 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 5.1183 4.9095 4.7147
14 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023
15 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4.8759
16 7.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.4053 5.1624 4.9377
17 7.5488 7.1196 6.7291 6.3729 6.0472 5.7487 5.4746 5.2223 4.9897
18 7.7016 7.2497 6.8399 6.4674 6.1280 5.8178 5.5339 5.2732 5.0333
19 7.8393 7.3658 6.9380 6.5504 6.1982 5.8775 5.5845 5.3162 5.0700
20 7.9633 7.4694 7.0248 6.6231 6.2593 5.9288 5.6278 5.3527 5.1009
21 8.0751 7.5620 7.1016 6.6870 6.3125 5.9731 5.6648 5.3837 5.1268
22 8.1757 7.6446 7.1695 6.7429 6.3587 6.0113 5.6964 5.4099 5.1486
23 8.2664 7.7184 7.2297 6.7921 6.3988 6.0442 5.7234 5.4321 5.1668
24 8.3481 7.7843 7.2829 6.8351 6.4338 6.0726 5.7465 5.4509 5.1822
25 8.4217 7.8431 7.3300 6.8729 6.4641 6.0971 5.7662 5.4669 5.1951
26 8.4881 7.8957 7.3717 6.9061 6.4906 6.1182 5.7831 5.4804 5.2060
27 8.5478 7.9426 7.4086 6.9352 6.5135 6.1364 5.7975 5.4919 5.2151
28 8.6016 7.9844 7.4412 6.9607 6.5335 6.1520 5.8099 5.5016 5.2228
29 8.6501 8.0218 7.4701 6.9830 6.5509 6.1656 5.8204 5.5098 5.2292
30 8.6938 8.0552 7.4957 7.0027 6.5660 6.1772 5.8294 5.5168 5.2347
31 8.7331 8.0850 7.5183 7.0199 6.5791 6.1872 5.8371 5.5227 5.2392
32 8.7686 8.1116 7.5383 7.0350 6.5905 6.1959 5.8437 5.5277 5.2430
33 8.8005 8.1354 7.5560 7.0482 6.6005 6.2034 5.8493 5.5320 5.2462
34 8.8293 8.1566 7.5717 7.0599 6.6091 6.2098 5.8541 5.5356 5.2489
35 8.8552 8.1755 7.5856 7.0700 6.6166 6.2153 5.8582 5.5386 5.2512
36 8.8786 8.1924 7.5979 7.0790 6.6231 6.2201 5.8617 5.5412 5.2531
37 8.8996 8.2075 7.6087 7.0868 6.6288 6.2242 5.8647 5.5434 5.2547
38 8.9186 8.2210 7.6183 7.0937 6.6338 6.2278 5.8673 5.5452 5.2561
39 8.9357 8.2330 7.6268 7.0997 6.6380 6.2309 5.8695 5.5468 5.2572
40 8.9511 8.2438 7.6344 7.1050 6.6418 6.2335 5.8713 5.5482 5.2582
41 8.9649 8.2534 7.6410 7.1097 6.6450 6.2358 5.8729 5.5493 5.2590
42 8.9774 8.2619 7.6469 7.1138 6.6478 6.2377 5.8743 5.5502 5.2596
43 8.9886 8.2696 7.6522 7.1173 6.6503 6.2394 5.8755 5.5510 5.2602
44 8.9988 8.2764 7.6568 7.1205 6.6524 6.2409 5.8765 5.5517 5.2607
45 9.0079 8.2825 7.6609 7.1232 6.6543 6.2421 5.8773 5.5523 5.2611
46 9.0161 8.2880 7.6645 7.1256 6.6559 6.2432 5.8781 5.5528 5.2614
47 9.0235 8.2928 7.6677 7.1277 6.6573 6.2442 5.8787 5.5532 5.2617
48 9.0302 8.2972 7.6705 7.1296 6.6585 6.2450 5.8792 5.5536 5.2619
49 9.0362 8.3010 7.6730 7.1312 6.6596 6.2457 5.8797 5.5539 5.2621
50 9.0417 8.3045 7.6752 7.1327 6.6605 6.2463 5.8801 5.5541 5.2623