Management Science

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

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

i.
ii.
iii.
iv.
v.

3X1 + 4X2 <= 20

---------------- 1
4X1 - 3X2 <= 10 ---------------- 2
X1 <= 4
---------------- 3
X2 >= 3
---------------- 4
3X2 >= - 2X1 ---------------- 5
Sketch the constraints
Identify feasible region
Determine the coordinates of corner points
Determine optimal values of objective function and X1 and X2
Determine slack/surplus.

2. Solve the following LP model i.e. find the optimal values of the objective
function and decision variables.
Max.:

P = 2X1 + 5X2 3X3

----------------

1
s.t:

X3 >= 5
---------------- 2
2X1 + 3X2 + 4X3 >= 12
---------------- 3
2X1 15 <= - 3X2 ---------------- 4
25 + X2 >= 4X3
---------------- 5

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

70x + 1,500y 105,000
where: x = Number of buses
y = Number of trains
RHS = number of passengers to be traveled per day
Interpret:
iii. Left hand side

i. Coefficient of y
iv. Inequality sign ()

ii. 70x

4. Consider the following constraints of a linear model:

3X1
X1
2X1
5X1

+ 2X2 + 2X3 <=

+ 4X2 +
X3 <=
+ X2 + 3X3 >=
+ 2X2 + 15X3 >=

120
50
70
200

It is further given that the objective of the model is maximization and

optimal values of X2 and X3 are zero. Determine optimal value of X1.

5. Thriftem Bank is in process of devising a loan policy that involves a

maximum of $12 million. The following table provides the pertinent data
about available types of loans:
Type of
Interest
Bad-debt
Loan
rate
ratio
Personal
0.140
0.10
Car
0.130
0.07
Home
0.120
0.03
Farm
0.125
0.05
Commercia
0.100
0.02
l
Bad-debts are unrecoverable and produce no interest.
Competition with other financial institutions requires that the bank
allocate at least 40% of the funds to farm and commercial loans. To assist
the housing industry in the region, home loans must be equal to at least
50% of the personal, car and home loans. The bank also has a stated
policy of not allowing the overall ratio of bad debts on all loans to exceed
4%.
[Source: Operations Research, 8th edition by Hamdy Taha.]

Model:
Variables:

X1= Personal loan (in millions of dollar)

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

Objective fn : Max = Revenue Cost

= {0.14(0.90)X1 + 0.13(0.93)X2 + 0.12(0.97)X3 +
0.125(0.95)X4 + 0.1(0.98)X5] [0.10X1 + 0.07X2 +
0.03X3 + 0.05X4 + 0.02X5}
= 0.02600X1 + 0.05090X2 + 0.08640X3 + 0.06875X4
+ 0.07800X5
Constraints:

X1 + X2 + X3 + X4 + X5 12

X4 + X5 0.4(X1 + X2 + X3 + X4 + X5)
X3 0.5(X1 + X2 + X3 + X4 + X5)
0.1X1 + 0.07X2 + 0.03X3 + 0.05X4 + 0.02X5
0.04(X1+X2+X3+X4+X5)
6. A federal agency has a budget of $1 billion in the form of grants for
innovative research in the area of energy alternatives. A management

review team consisting of scientists and economists has made a

preliminary review of 200 applications, narrowing the field to 6 finalists.
Each of the six finalists projects have been evaluated and scored in
relation to potential benefits expected over the next ten years. These
estimated benefits are shown in the table below. They represent the net
benefits per dollar invested in each alternative.

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

Net Benefit per

dollar invested
4.4
3.8

Requested level
of funding ($ in
million)
220
180

4.1
3.5
5.1
3.2

250
150
400
120

Above table also shows the requested level of funding. These figures
represent the maximum amount, which can be awarded to any project.
The agency can award any amount up to the indicated maximum for a
given project. Similarly, the president has mandated that the nuclear
project should be funded to al least 50% of the requested amount. The
agencys administrator has a strong interest in solar projects and has
requested that the combined amount awarded to the two projects should
be at least $300 million.
Apart from above, following constraints should also be considered.
i. Each project should receive at least 20% of the requested amount.
ii. The amount awarded for the synthetic fuel project should be at least as
much as that awarded for the coal project.
iii. Combined funding for the geothermal project and synthetic project
should be at least $30 million.
iv. Funding for the nuclear project should be at least 40% greater then the
funding for the geothermal project.
v. Funding for the Solar-2 should be no more than 80% of the funding for
Solar-1.
Formulate a LP model to determine the amount of money to be
awarded to each project in order to maximize total benefits.
[Source: Applied Mathematics for Business, Economics and Social
Sciences by Frank S. Budnick]

Model
3

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

Objective fn : Max = 4.4X1 + 3.8X2 + 4.1X3 + 3.5X4 + 5.1X5 + 3.2X6
Constrains: X1 + X2 + X6 1000
X1 220 X6 120 [Six Constraints]
X5 0.5400
X1 + X2 300
X1 0.2(220) X6 0.2(120) [Six Constraints]
X3 X4
X3 + X6 30
X5 1.4X6
X2 0.8X1
[Nineteen Constraints]
7. The real estate company owns 800 acres of undeveloped land and the
president of the company is studying the possibility of developing a
housing project on it. Apart from homes, the project will also include the
area for roads, utilities and recreation. He estimates that 15% of the
acreage will be consumed in the roads and utilities.
Following Government Regulations are applicable in this region.
i. Only single, double and triple-family homes can be constructed, with
the single family homes accounting for at least 50% of the total.
ii. The lot size of 2, 3 and 4 acres are required for single, double and
triple-family homes, respectively.
iii. Recreation area of one acre each must be to be established at the rate
of one area per 200 families.
The availability of water for the project is limited to 200,000 gallon per
day. The per unit water consumption and net returns from the different
housing units are as under:
Singl
e
Water Consumption
(gallon/day)
Net Return (Rupees)

400
10,0
00

Double
600
15,000

Tripl
e

Recreati
on

840
20,0
00

450
-

Formulate a LP model to determine optimal number of single, double

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

Model
Variables: X1 = Number of single family homes

X2 = Number of double family homes

X3 = Number of triple family homes
X4 = Number of recreational area
Objective fn : Max = 10,000X1 + 15,000X2 +
20,000X3
Constrains: X1 0.5(X1 + X2 + X3)
2X1 + 3X2 + 4X3 + X4 680
[800*.85]
X4 (X1 + 2X2 + 3X3)/200
400X1 + 600X2 + 840X3 + 450X4
200,000

Linear Programming Sensitivity Analysis

8.

Consider the following output generated through POM-QM

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

Value
0
1.149
16.66
7
3.736
Dual
Value

Reduced
Cost
2.948
0

Original
Val
7
9

Lower
Bound
- infinity
7.02

Upper
Bound
9.948
11.927

0
15
0
13
Slack/Surplu Original
s
Val

11.517
3.529
Lower
Bound

18.345
17.04
Upper
Bound

0.58

125

59.029

151

0.557

175

170.918

212.242

26.54

82

55.46

0.463

300

223.529

Infinity
307.273

Answer the following question:

i.

Determine optimal value of the objective function

ii.

Identify binding and non-binding constraints.

iii.

Which resources and by how much should be increased in order to

improve the optimal solution.

iv.

Which resources and by how much should be decreased without

causing a change in optimal solution.

v.

Determine unit worth of each resource.

vi.

Determine effects on profit due to increase/decrease of the resources

as per part iii and iv above.

vii.

Determine the range of coefficients of objective function within which

optimal solution does not change.

9. Consider the following LP model:

Max: P = 11X1 + 13X2 + 15X3
s.t.:
25X1 + 30X2 + 50X3 <=
5X1 + 3X2 + 4X3 <=
10X1 + 15X2 + 7X3 <=
2X1 + 2X2 + 2X3 <=

500
50
150
125

Answer the following questions:

i.

Which resources and by how much should be increased in order to

improve the optimal solution.

ii.

Which resources and by how much should be decreased without

causing a change in optimal solution.

iii. Determine unit worth of each resource.

iv.

Determine the effects on profit due to increase/decrease of the

resources (refer i and ii above).

v.

If Resource-I is increased by 50 units, what effect it will have on

X1.

vi. If Resource-II is increased by 15 units, what effect it will have on

X2.
vii. Determine the range of coefficients of objective function within
which optimal solution does not change.
viii. Company may like to increase one resource at a time; develop a
priority list for decision making.
{For your assistance one of the results
Reduced
Original
Variable
Value
Cost
Val
X1
2.105
0
11
X2
6.14
0
13
X3
5.263
0
15
Constraint Dual
Slack/Surplu Original

is given below}
Lower
Upper
Bound
Bound
9.907
18.974
9.7
14.815
8.089
21.6
Lower
Upper

Value
Constraint
1
Constraint
2
Constraint
3
Constraint
4

Val

Bound

Bound

0.218

500

333.333

576.923

0.414

50

44.444

76.923

0.347

150

91.667

250

97.982

125

27.018

Infinity

Solution
Resource
s

Quantity

ii.

Resource
s

Quantity

iii.

Resource 1

Resource 2

Resource 3

Resource
4

iv.

Resource 1

Resource 2

Resource 3

Resource
4

i.

v.

vi.
X1

vii.
viii.

First

X3

X2
Second

Third

Fourth

Transportation and Transshipment

1.

Consider the following transportation Problem:

Plant 1 Plant
2 Plant
3
Dema
nd

Customer
1
50

Custome
r2
27

Customer
3
33

Customer
4
36

43

31

40

46

31

26

22

43

17,900

6,800

8,900

10,200

Suppl
y
25,00
0
5,900
10,60
0

It is further given that;

- Customer-1 is a VIP customer and company cannot say No to
them.
-

Plant-2 is not allowed to send any unit to customer-1

60% production of Plant-1 must go to Customer-2 and Customer-3.

Solve the above problem and give the answer as per the following
format:
From
Plant 1
Plant 1
Plant 1
Plant 1
Plant 2
Plant 2
Plant 2
Plant 2
Plant 3
Plant 3
Plant 3

To

Rate per
unit

Quantity

Cost

Customer
1
Customer
2
Customer
3
Customer
4
Customer
1
Customer
2
Customer
3
Customer
4
Customer
1
Customer
2
Customer
3
Sum

Markov Analysis
1.

2.

For the following transition matrix, determine steady state probability

manually (Show necessary steps):

T=

3.

0.854 0.114 0.0 .32

Find A if A= 0.034 0.911 0.055
0.022 0.74 0.904
50

0.85 0.15
0.08 0.91

A business school is running a four-year degree program. Students

enrolled in the program are classified as freshman (first year),
sophomore (second year), junior (third year) and senior (forth year).
An analysis of the historical data reveals the following results:
Graduate rate:

90% of senior will graduate

Dropout rates:
20% from freshman would be dropouts
15% from sophomore would be dropouts
10% from junior would be dropouts and
5 % from senior would be dropouts
Freshman:

15% of freshman will remain in this category.

Sophomore: 10% of sophomore will remain in this category.

Junior:

5% of juniors will remain in this category.

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

Freshma
n
Sophomo
re
Junior
Senior
Dropouts
Graduate

Freshma
n

Sophomo
re

Junior

Senio
r

Dropout
s

Graduat
e

0.15

0.65

0.00

0.00

0.20

0.00

0.00

0.10

0.75

0.00

0.15

0.00

0.00
0.00
0.00
0.00

0.00
0.00
0.00
0.00

0.05
0.00
0.00
0.00

0.85
0.05
0.00
0.00

0.10
0.05
1.00
0.00

0.00
0.90
0.00
1.00

10

Project Scheduling
PERT/CPM
1
Consider the following scheduling of a project, constructed through
PERT.
Time (week)
Activity
A
B
C
D
E
F
G
H
I
J

Optimisti
c
25
20
18
16
21
18
30
26
8
17

Most Likely
38
27
29
26
29
27
42
36
20
24

Pessimisti
c
57
40
40
36
43
38
60
52
26
37

Immediate
Predecesso
rs
A
A
A, B
C, D
A, B, C
B
G
G
H, I

On the basis of above information answer the following questions:

i.
ii.
iii.
iv.
v.
2.

Construct a project network and identify a critical path.

Calculate average project completion time and variance of the
project.
If activity C is delayed by 20 weeks, what effect it will have on the
project completion time.
Determine the probability of completing the project within 200
weeks.
Determine the time by which management would be 99 per cent
confident of completing the project.

Consider the following scheduling of a project along with cost,

constructed through CPM technique:
Immediate
Time (week)
Cost
Predecesso
r
Activities
Norma
Normal Crash
Crash
l
A
10
5
6,950
9,450
B
14
10
13,800 15,200
A
C
14
8
8,500 10,600
A, B
D
25
14
18,250 21,000
C
E
30
25
29,350 30,725
D
F
20
13
16,800 20,300
E
G
28
14
15,600 21,200
E, F

11

On the basis of above information answer the following questions:

i.
ii.
iii.
iv.
v.
vi.

Construct a project network and identify a normal critical path and

crash critical path.
Determine minimum and maximum cost of the project.
Can we complete this project in Rs.100,00/= week. Support your
answer.
If we want to save one week in the activity E, how much extra cost
we have to pay.
Determine the project completion time if our budget is
Rs.120,000/=.
Calculate the project cost if we want to complete this project in
110 weeks.

12