Operations Research

Overall Objectives
To understand the use of quantitative techniques in business decision making.
To understand the use of statistical tools in decision and data analysis.

Methodology:
Problem solving
Case Analysis

References

Operations research: Hamdy Taha, Prentice Hall of India

Quantitative techniques for management-Anderson Williams Sweeney
Operations research :J.K.Sharma
Quantitative techniques in Management- N D Vohra

Linear Programming Problem

Objectives:
 To know Linear programming
 To understand formulation of LPP
 Know different situations of applications of LPP.
 Identify situations of LPP
 Appreciate the technique of LPP.

Introduction
Formulation of LPP
Solution of LPP ; By graphical Method
By Simplex Method
Types of LPP
Duality in LPP
Sensitivity and post optimality analysis

1. A firm produces two products A and B. Each unit of product A requires 3 units of raw
material X and 5 units of raw material Y and 4 units of labour time. Each unit of product B
requires 4 units of raw material X and 3 units of raw material Y and 2 units of labour time.
The raw materials used are limited. The firm has 60 units of raw material X, 45 units of raw
material Y and 50 units of labour time available.
The unit profit of product A and B is expected to be Rs. 8 and Rs. 10 respectively. Formulate
this as linear programming problem.

2. The agricultural research unit of a fertilizer company has advised t the farmers to provide
at least 6000 Kgs of phosphate and 7500 Kgs of nitrogen. It is possible to obtain these
nutrients from three mixtures. A , B and C . The cost of a 50 Kg for these 3 mixtures is
Rs. 50, Rs. 60 and Rs. 55. The phosphate and urea contents in these mixtures are 20 Kg and
30 Kg in mixture A, 25 Kg and 25 Kg in mixture B and 30 Kg and 20 Kg in mixture C
respectively. Formulate this as LPP to minimize the total cost.

3. The marketing manager of Hops Brewery has an advertising budget of $100000. He must
determine how much to spend on television spots and magazine ads. Each spot is expected to
increase sales by 30000cans,where as each magazine ad will account for 100000 cans in
sales. Hops gross profit on sales is 10 cents per can. One television spot costs $2000; each
magazine ad requires an expenditure of $5000. To have a balanced marketing program, the
advertising budget must involve no more than $70000 in magazine ads nor $50000in
television spots.
Formulate the linear programming problem.

4. HiDec produces two models of electronic gadgets that use resistors, capacitors and chips.
The following table summarizes the data of the situation
Resource unit resource requirement Maximum availability
Model 1 model 2 units
Resistors 2 3 1200
Capacitors 2 1 1000
Chips 0 4 800

Unit profit $ 3 4

5. The Win Big Gambling Club promotes gambling junkets from a large wide western city to
casinos in Bahamas. The club has budgeted up to $8000 per week for local advertising. The
money is to be allocated among four promotional media. Win Big’s goal to reach the largest
possible high potential audience through the various media. The following table presents the
number of potential gamblers reached by making use of advertisements in each of the four
media. It also provides the cost /advertisement placed and the maximum number of ads that
can be purchased per week.

Medium audience reached /ad cost/ad ($) maximum ads/week

TV spot 1 minute 5000 800 12
Daily news paper
Full page 8500 925 5
Radio spot30 seconds
Prime time 2400 290 25
Radio spot 1 minute
Afternoon 2800 380 20

Win Big’s contractual arrangements require that at least five radio spots be placed each week.
To ensure a broad scoped promotional campaign. Management also insists that no more than
$1800 be spent on radio advertisement every week.
Formulate this as LPP to maximise the effective exposures.

6. The high note sound company manufactures quality compact disks (CD) players and
stereo receivers. Each of these products requires a certain amount of skilled craftsmanship, of
which there is a limited weekly supply. The firm formulates the following LPP in order to
determine the best production mix of CD players and receivers.
Maximise profit= $50 X1+$120 X2
Subject to constraints
2X1+4X2≤ 80 (hours of available electrician’s time)
3X1+X2≤ 60 (hours of audio technician’s time available)
X1≥0 and X2≥0
Solve this problem as LPP using graph. Also write the dual of the problem and interpret

7. The decision is to be taken concerning the number of hours spent by biochemists on certain
laboratory experiments and the number of hours spent by biophysicist on the same series of
experiments. A biochemist costs$23/hour while a biophysicist salary averages $18/hour. Both
types of scientists can be used on three needed laboratory operations: tests 1, tests 2 and tests
3. The experiments and their times are as follows:

Lab experiment scientists type minimum test

Biophysicists Biochemists time needed per day
Test 1 8 4 120
Test 2 4 6 115
Test 3 9 4 116
Formulate the problem as LPP and solve using simplex method.
What is the dual of the primal problem? Interpret the meaning of dual and its solution

8. An investor has moneymaking activities A1, A2, A3, and A4. He has only one lakh of rupees
to invest. In order to avoid excessive investment, no more than 50% of the total investment
can be placed in activity A2 and for activity A3. Activity A1 is very conservative, while
activity A4 is speculative. To avoid excessive speculation, at least rupee 1 be invested in
activity A1 for every rupee 3 invested in activity A4. The data on returns on investments are as
follows:

Activity Anticipated returns on investments (%)

A1 10
A2 12
A3 14
A4 16

The investor wishes to know how much should he invest in each activity to maximise the
total returns on investments. Formulate this problem as linear programming problem.

9. The board of directors of a company has given an approval for the construction of a new
plant. The plant will require an investment of Rupees 50 lakh. The required funds will come
from the sale of proposed bond issue and loans from two financial institutions. For the
company, it will not be possible to sell more than Rupee 20 lakh in bonds at the proposed rate
of 12%. Financial corporation A will loan up to Rupee 30 lakh at an interest rate of 16% but
insists that the amount of the bond debt plus the amount owned to the financial corporation B
will not be more than twice the amount owned to the financial institution A. Financial
corporation B will loan am amount up to the amount loaned by the financial corporation A
but at the interest rate of 18%. Formulate this as a linear programming problem to determine
the amount of funds to be obtained from each source in a manner that minimizes the total
amount of interest charge.

10. A company has two grades of inspectors 1 and 2 , who are to be assigned for a quality
control inspection. It is required that at least 2000 pieces be inspected per 8 hour day. Grade 1
inspector can check pieces at the rate of 40 per hour with an accuracy of 97%. Grade 2
inspectors checks at the rate of 30 pieces per hour with an accuracy of 95%.
The wage rate of a grade 1 inspector is Rs. 5 per hour while that of a grade 2 inspector is Rs.
4 per hour. An error made by an inspector costs Rs. 3 to the company. There are only nine
grade 1 inspectors and eleven grade 2 inspectors available in the company. The company
wishes to assign work to the available inspectors so as to minimize the total cost of
inspection. Formulate this problem as an LPP model so as to minimize daily inspection cost.

11. A company engaged in producing tinned food, has 300 trained employees on the rolls,
each of whom can produce one can of food in one week. Due to the developing taste of the
public for this kind of food, the company plans to add to the existing labour force by
employing 150 people, in a phased manner over the next five weeks. The new comers would
have to undergo a two week training programme before being put to work. The training is to
be given by existing employees from among the existing ones and it is known that one of the
employee can train three trainees. Assume that there would be no production form the
trainers and the trainees during training period as the training off the job. How ever, the
trainees would remunerated at the rate of Rs. 300 per week, the same rate as for the trainers.
The company has booked the following orders to supply during the next five weeks.

Week 1 2 3 4 5
No. Of cans 280 298 305 360 400
Assume that the production in any week would not be more than the number of cans ordered
so that every delivery of food would be fresh.
Formulate this problem as an LPP to develop a training schedule that minimizes the labour
cost over the five week period.

12. XYZ company produces an automobile spare parts . The contract that has been signed
with a large truck manufacturer calls for the following four month shipping schedule.
Month Number of parts to be shipped.
January 3000
February 4000
March 5000
April 5000
The company can manufacture 3000 parts per month on a regular time basis and 2000 parts
per month on an overtime basis. Its production costs Rs. 15000 for a part produced in regular
time and Rs. 25000 for a part produced in overtime. Its monthly inventory holding cost is Rs.
500.
Formulate this problem as an LPP model to minimize the overall cost.

13. An advertising company wishes to plan an advertising campaign in three different media:
television, radio, and a magazine. The purpose of the advertising is to reach as many as
potential customers as possible. Following are the results of a market study:
Television
Prime day prime time Radio Magazine
Cost of an advertising unit 40000 75000 30000 15000
Number of potential
customers reached per unit 400000 900000 500000 200000
Number of women
Customers reached per unit 300000 400000 200000 100000

The company does not want to spend more than Rs. 800000 on advertising. It is further
required that
i) at least 2 million exposures take plane among women
ii) advertising on television be limited to Rs. 5,00,000
iii) at least three advertising units be bought on prime day and two units during
prime time; and
iv) the number of advertising units on radio and magazine should each be between
5 and 10.

Formulate this problem as an LPP to maximize potential customer reach.

14. A business man is opening a new restaurant and has budgeted Rs. 8,00,000 for
advertisement in the coming month. He is considering four types of advertising :
i) 30 seconds television commercials
ii) 30 seconds radio commercials
iii) Half page advertisement in a news paper
iv) Full page advertisement in a weekly magazine which will appear four times
during the coming month.

The owner wishes to reach families with income both over and under Rs. 50,000. The amount
of exposure to families of each type and the cost of each media is shown below:

Media cost of advertisement Exposure to families with Annual Income

Over Rs.50,000 Under Rs. 50,000

Television 40000 200000 30000

Radio 20000 500000 700000
News paper 15000 300000 150000
Magazine 5000 100000 100000

To have a balanced campaign, the owner has determined the following restrictions
i) no more than four television advertisements
ii) no more than four advertisements in the magazine
iii) no more than 60% of all the advertisements in news paper and magazine
iv) there must be at least 4500000 exposures to families with income under Rs.
50000.

Formulate this as an LP model to determine the number of each type of advertisement to

pursue so as to maximize the total number of exposures.

15. A machine tool company conducts a job training program for machinist. Trained
machinists are used as teachers in the program in the ratio of one for every ten trainees. The
training programme lasts for one month. From the past experience it has been found that out
of en trainees hired only seven complete a programme success fully and rest are released.
Trained machinists are also needed for machining and company requirement for the next
three months is as follows:
January 100 February 150 March 200
In addition, the company requires 250 machinists by April. There are 130 trained machinists
available at the beginning of the year. Pays per month are
Each trainee Rs. 1400
Each trained machinist
(machining and teaching) Rs. 1900
Each trained machinist idle Rs. 1700

Formulate this problem as LP model to minimize the cost of hiring and training schedule and
the company’s requirements.

16. Relax-and-Enjoy Lake Development Corporation is developing a lakeside community at a

privately owned lake. The primary market for the lakeside lots and homes includes all
middle-and upper-income families within approximately 100 miles of the development
Relax-and-Enjoy has employed the advertising firm of Bone, Phillips and Jackson (BP&J) to
designs the promotional campaign.

After considering possible advertising media and the market to be covered, BP&J has
recommended that the first month’s advertising be restricted to five media. At the end of the
month, BP&J will then revaluate its strategy based on the month’s results. BP&J has
collected data on the number of potential customers reached, the cost per advertisement, the
maximum number of times each medium is available, and the exposure quality rating for
each of the five media. The quality rating is measured in terms of an exposure quality unit, a
measure of the relative value of the one advertisement in each of the media. This measure,
based n BP&J’s experience in the advertising business, takes into account factors such as
audience demographics( age, income, and education of the audience reached), image
presented, and quality of the advertisement. The information collected is presented in Table
4.1.

Relax-and-Enjoy provided BP&J with an advertising budget of $ 30,000 for the first month’s
campaign. In addition, Relax-and-Enjoy imposed the following restriction on how BP&J may
allocate these funds. At lease 10 television commercials must be used, at least 50,000
potential customers must be reached, and no more than $18,000 may be spent on television
advertisements. What advertising media selection plan should be recommended?

ADVERTISING MEDIA ALTERNATIVES FOR THE RELAX-AND-ENJOY LAKE

DEVELOPMENT CORPORATION

Advertising Media Number of Cost ($) Maximum Exposure

Potential per Times Quality
Customers Advertise Available Units
Reached ment per
Month*
1. Daytime TV (1 min) station 1000 1500 15 65
WKLA
2. Evening TV (30sec), station 2000 3000 10 90
WKLA
3. Daily newspaper (full page) 1500 400 25 40
 The Morning Journal
4. Sunday newspaper 2500 1000 4 60
1
magazine ( 2 page colour),
The Sunday Press
5. Radio, 8:00 A.M. or 300 100 30 20
5:00P.M. news (30 sec),
station KNOP

17. An organization conducts marketing research to learn about consumer characteristics,

attitudes, and preferences. Marketing research firms that specialize in providing such
information often do the actual research for client organizations. Typical services offered by a
marketing research firm include designing the study, conducting market surveys, analysing
the data collected, and providing summary reports and recommendations for the client. In the
research design phase, targets or quotas may be established for the number and types of
respondents to be surveyed. The marketing research firm’s objective is to conduct the survey
so as to meet the client’s needs at a minimum cost.
Market Surveys Inc.(MSI), specializes in evaluating consumer reaction to a new
products, services, and advertising campaigns. A client firm has requested MSI’s assistance
in ascertaining consumer reaction to a recently marketed household product. During meetings
with the client, MSI agreed to conduct door-t--door personal interviews to obtain responses
for households with children and households without children. In addition, MSI agreed to
conduct both day and evening interviews. Specifically, the client’s contract called for MSI to
conduct 1000 interviews under the following quota guidelines.
1. Interview at least 400 households with children.
2. Interview at least 400 households without children.
3. The total number of households interviewed during the evening must be at least as great as
the number of households interviewed during the day.
4. At least 40% of the interviews for households with children must be conducted during the
evening.
5. At least 60% of the interviews for households without children must be conducted during
the evening.
Because the interviews for households with children take additional interviewer time and
because evening interviewers are paid more than daytime interviewers, the cost varies with
the type of interview. Based on previous research studies, estimates of the interview costs are
as follows:
Interview Cost
Household Day Evening
Children $20 $25
No children %18 $20

What is the household time-of-day interview plan that will satisfy the contract requirements
at minimum total interviewing cost?

18. Welte Mutual Funds, Inc. located in New York City. Welte has just obtained $100,000 by
converting industrial bonds to cash and is now looking for other investment opportunities for
thee funds. Based on Welte’s current investments, the firm’s top investment analyst
recommends that all new investments be made in the oil industry, steel industry or in
government bonds. Specifically, the analyst has identified five investment opportunities and
projected their annual rates of returns. the investments and rates of return are shown in Table
4.3.
Management of Welte has imposed the following investment guidelines.
1. Neither industry (oil or steel) should receive more than $50,000
2. Government bonds should be at least 25% of the steel industry investments.
3. The investment in Pacific Oil, he high-return but high-risk investment, cannot be more
than 60% of the total oil industry investment.

INVESTMENT OPPORTUNITIES FOR WELTE MUTUAL FUNDS

Investment Projected Rate of Return (%)
Atlantic Oil 7.3
Pacific Oil 10.3
Midwest Steel 6.4
Huber Steel 7.5
Government bonds 4.5

What portfolio recommendations- investments and amounts- should be made for the available
$100,000? Given the objective of maximizing projected return subject to budgetary and
managerially imposed constraints, we can answer this question by formulating and solving a
linear programming model of the problem.

19. Hewlitt Corporation has established in early retirement program as part of it’s corporate
restructuring. At the close of the voluntary sign-up period, 68 employees had elected early
retirement. As a result of these early retirements, the company has incurred the following
obligations over the next years. Cash requirements (in thousands of dollars) are due at the
beginning of each year.

Year 1 2 3 4 5 6 7 8

Cash Requirement 430 210 222 231 240 195 225 255

The corporate treasurer must determine how much money must be set aside today to meet
eight yearly financial obligations as they come due. The financing plan for the retirement
program includes investments in government bonds as well as saving. The investments in
government bonds are limited to three choices.

Bond Price Rate Years to Maturity

1 $1150 8.875 5
2 1000 5.500 6
3 1350 11.750 7

The government bonds have a par value of $1000, which means that even with different
prices each bond pays $1000 at maturity. The rates are based on the par value. For purpose of
planning, the treasurer has assumed that any funds not invested in bonds will be placed in
savings and earn interest at an annual rate of 4%.

20. The Janders Company markets various business and engineering products. Currently
Janders is preparing to introduce two new calculators. one for the business market called the
Financial Manager and one for the engineering market called the Technician. Each calculator
has three components, a base, an electronic cartridge, and a face plate or tap. The same base
is used for both calculators, but the cartridges and tops are different. All components can be
manufactured by the company or purchased from outside suppliers. The manufacturing costs
and purchase prices for the components are summarised in Table below.
Janders’ forecasters indicate that 3000 Financial Manager calculators and 2000 Technician
calculators will be needed. However, manufacturing capacity is limited. The company has
200 hours of regular manufacturing time and 50 hours of overtime that can be scheduled for
the calculators. Overtime involves a premium at the additional cost of $9 per hour. Table
below shows manufacturing times (in minutes) for the components.
MANUFACTURING COSTS AND PURCHASE PRICES FOR JANDERS CALCULATOR
COMPONENTS
Cost per Unit
Components Manufacture (Regular Time) Purchase
Base $0.50 $0.60
Financial Manager cartridge 3.75 4.00
Technician cartridge 3.30 3.9.
Financial Manager top 0.60 0.65
Technician top 0.75 0.78

21. B and K grocery store sells two types of soft drinks the brand name A1 cola and the
cheaper store brand B& K cola. The margin for A1 about 5 cents per can and that of B&K is
7 cents per can. On the average store sells no more than 500 cans of both colas a day.
Although A1 is a recognized brand name, customers tend to buy more B &K because it is
reasonably cheaper. It is estimated that at least 100 cans of A1 are sold daiy and that B&K
out sells A1 by a margin of at least 2:1.
How many cans per day of each brand should the store carry to maximize profit?

22. Reddy Mikks produces both interior and exterior paints from two raw materials, M1 and
M2. The following table provides the basic data of the problem:

Tons of raw material per ton of Maximum daily

Exterior paint Interior paint availability(tons)
Raw material M1 6 4 24
Raw material M2 1 2 6
Profit per tone ($1000) 5 4

A market survey indicates that the daily demand for the interior paints can not exceed that if
the exterior paint by more than one ton. Also, the maximum daily demand of interior paint is
2 tons.
Reddy MIKKS want to determine the optimal product mix of interior and exterior paints that
maximizes the total daily profit.

23. The president of Birdeyes Real Estate is studying the possibility of developing the
company’s 800 acres. The new development will include single-, double-, and triple family
homes. It is estimated that 15% of the acreage will be allocated to streets and the utility
easements. Birdeyes estimate the returns from the different housing units as
Housing unit single double triple
Net return per unit($) 10000 12000 15000

The cost of connecting water services to the area is propor5tionate to the number of units
constructed. How ever, the county charges a minimum of $ 100000 for the project.
Additionally the expansion of the water system beyond the present capacity is limited to
200000 gallons per day during peak periods. The following data summarize the cost of
connecting water service as well as the water consumption assuming an average size family

Housing unit single double triple recreation

Water service
cost per unit($) 1000 1200 1400 800
Water consumption
per unit (gal/day) 400 600 840 450
Formulate this problem as Linear programming problem.

24. Progress City is studying the feasibility of introducing a mass transit bus system that will
elevate the smog problem by reducing city driving. The study seeks the determination of
number of buses that can handle that transportation needs. After gathering the necessary
information, the city engineer noticed that the minimum number of buses needed fluctuates
with time of the ay and that the required number of buses can be approximated by constant
values over successive 4 hour interval. The table below summarizes the engineer’s findings.
To carry out the required daily maintenance, each bus can operate only 8 successive hours a
day.

Time number of buses

12.00- 4.00 AM 4
4.00 -8.00 AM 8
8.00 -12.00 noon 10
12.00- 4.00 PM 7
4.00-8.00 PM 12
8.00-12.00 midnight 4
Formulate the problem as LP model.