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# 1

Solver
Finding maximum, minimum, or value by
changing other cells

Dont need to guess and check
2
Solver
3
Using Solver, Excels Solver
1. EXCELS SOLVER
The utility Solver is one of Excels most useful tools for business
analysis. This allows us to maximize, minimize, or find a predetermined value
for the contents of a given cell by changing the values in other cells.
Moreover, this can be done in such a way that it satisfies extra constraints that
we might wish to impose.
Example 1. The size limitations on boxes shipped by your plant are
as follows. (i) Their circumference is at most 100 inches. (ii) The sum of their
dimensions is at most 120 inches. You would like to know the dimensions of
such a box that has the largest possible volume. Let H, W, and L be the
height, width, and length of a box; respectively; measured in inches. We wish
to maximize the volume of the box, V = HWL, subject to the limitations that
the circumference C = 2H + 2W s 100 and the sum S = H + W + L s 120.
This problem is set up in the Excel file Shipping.xls. We will outline
its solution with screen captures and directions. First, enter any reasonable
values for the dimensions of the box in Cells B7:D7.
Shipping.xls
Using Solver. Excels Solver
(material continues)
I T C
4
To use Solver, click on Data, then
Solver in the Analysis box. In older
versions of Excel select Tools in the main
Excel menu, then click on Solver.
Using Solver, Solver
H
L
FRAGI LE
Crush slowly
Shipping.xls
Using Solver. Excels Solver: page 2
(material continues)

Computer Problem?
I C T
To use Solver, click on Data, then
Solver in the Analysis box. In older
versions of Excel select Tools in the main
Excel menu, then click on Solver.
Enter cell that computes volume.
Select Max.
Enter cells that contain
dimensions
5
Using Solver, Solver
Shipping.xls
Using Solver. Excels Solver: page 3
(material continues)
I C T
Enter cell that computes circumference.
Select <=.
Enter the limiting number.
Click on OK.
The requirement that the circumference be at most 100 inches is
called a constraint. We want to have the contents of Cell E7 be at most 100.
Repeat the above process to add the constraint F7 <=120, then click
on Solve.
6
Click on Keep Solver Solution.
Click on OK.
Click on Solve.
Using Solver, Solver Using Solver. Excels Solver: page 4
Shipping.xls
(material continues)
I C T
7
Using Solver, Solver
The dimensions that maximize
volume are now shown in Cells B8:D8. The maximum volume, the value of
the circumference and the sum of the dimensions are now displayed. For a
maximum volume of 43,750 cubic inches, the box should be 25 inches high,
25 inches wide, and 70 inches long.
Shipping.xls
Using Solver. Excels Solver: page 5
(material continues)
I
In rare cases; such as very large or small initial values of H, W, or L;
you may need to add the constraints B7 >=0, C7 >=0 and D7 >=0.
C T
8
Using Solver, Solver
Using Solver. Excels Solver: page 6
(material continues)
Rush! shipping company limits the size of the
boxes that it accepts by limiting their volume to at most 16 cubic feet
(27,648 cubic inches). For it to ship a box, each dimension must be between
3 and 54 inches. (i) Modify Shipping.xls and use Solver to find the
dimensions of a Rush! box which will accept the longest possible item.
Hint: Use different initial values for each dimension. (ii) What is the
maximum length of such an item? Note that the longest item which can be
shipped in a box has a length of

.
2 2 2
L W H + +
Shipping.xls
I C T
Show ex3-sep14-shipping.xls
9
Solver
Sensitive to initial value

Use graphical approximation to help solve
project

Use to verify/solve Questions 1 - 3

Use to solve Questions 6 - 8
10
Integration
Revenue as an area under Demand function

( ) ( ) q D q q R =
-1.2
-10
q
D(q)
Demand Function
Revenue
q
D(q)
11
Integration
Total possible revenue- The total possible revenue is the money that
the producer would receive if everyone who wanted the good, bought it at the maximum
price that he or she was willing to pay. This is the greatest possible revenue that a seller or
producer could obtain when operating with a given demand function

-1.2
-8
Demand Function
Total Possible
Revenue
12
Integration
Consumer surplus revenue lost by charging less/ Some buyers would have
been willing pay a higher price for the good than we charged. The total extra amount of money
that people who bought the good would have paid is called the consumer surplus
Producer surplus revenue lost by charging more/ some potential customers do
not buy the good, because they feel that the price is too high. The total amount of this lost
income, which we will call not sold, is represented by the area of the region under the graph of
the demand function to the right of the revenue rectangle.
-1.2
-8
q
D(q)
Revenue
Consumer
Surplus
Not
Sold
Demand Function
13
Integration
Approximating area under graph

- Counting rectangles (by hand)
- Using Midpoint Sum (by hand)
- Using Midpoint Sums.xls (using Excel)
- Using Integrating.xls (using Excel)
14
Integration
Approximating area (Counting Rectangles)

Ex.
Approx. 9 rectangles

Each rectangle is 0.25
square units

Total area is approx.
2.25 square units
0
0.5
1
1.5
2
2.5
0 0.5 1 1.5 2
15
Integration
Approximating area (Midpoint Sums)

- Notation

- Meaning
| | ( ) b a f S
n
, ,
| | given interval : ,
given function :
rectangles with sum :
b a
f
n S
n
16
Integration
Approximating area (Midpoint Sums)

- Process
Find endpoints of each subinterval

Find midpoint of each subinterval

n
x x x x x ..., , , , ,
3 2 1 0
n
m m m m ..., , , ,
3 2 1
17
Integration
Approximating area (Midpoint Sums)

- Process (continued)
Find function value at each midpoint

Multiply each by and add them all

This sum is equal to
( ) ( ) ( ) ( )
n
m f m f m f m f ..., , , ,
3 2 1
( )
i
m f
x A
( ) ( ) ( ) ( ) x m f x m f x m f x m f
n
A + + A + A + A ...
3 2 1
| | ( ) b a f S
n
, ,
18
Integration

Approximating area (Midpoint Sums)

Ex1. Determine where
.

| | ( ) 5 . 1 , 0 ,
3
f S
( )
2
4 6 x x x f =
5 . 1
0 . 1
5 . 0
0
3
2
1
0
=
=
=
=
x
x
x
x
25 . 1
75 . 0
25 . 0
3
2
1
=
=
=
m
m
m
19
Integration
Approximating area (Midpoint Sums)

Ex1. (Continued)

| | ( ) ( ) ( ) ( )
( ) ( ) ( )
375 . 2
5 . 0 25 . 1 5 . 0 25 . 2 5 . 0 25 . 1
5 . 0 25 . 1 5 . 0 75 . 0 5 . 0 25 . 0
5 . 1 , 0 ,
3 2 1 3
=
+ + =
+ + =
A + A + A =
f f f
x m f x m f x m f f S
20

Integration
Approximating area (Midpoint Sums.xls)
Ex1. (Continued)

=6*x-4*x^2

21

22

Show
ex2-n-100Area
Example.xlsm
23
EXAMPLE 2 - Modify sheet n = 20 in Area Example.xls,
so that it computes the sum S
100
(f, [0, 4]), with 100 subintervals, for f(x) = 2x
x
2
/2.
24
Integration-9/28
Approximating area (Integrating.xls)

- File is similar to Midpoint Sums.xls

- Notation: or or
( )
}
b
a
dx x f ( )
}
b
a
dt t f
25
Integration
show ex3-Integrating.xlsm

Approximating area (Integrating.xls)

Ex3. Use Integrating.xls to compute

}

4
1
6 /
6
1
dx e
x

26
Integration
Approximating area (Integrating.xls)

27
Integration
Approximating area (Integrating.xls)

Ex3. (Continued)

So . Note that is the
p.d.f. of an exponential random variable with
parameter . This area could be calculate
using the c.d.f. function .
3331 . 0
4
1
6 /
6
1
~
}

dx e
x 6 /
6
1
x
e

6 = o
( ) ( ) a F b F
X X

28
Integration
Approximating area (Integrating.xls)

Ex3. (Continued)
( ) ( ) ( ) ( )
( ) ( )
3331 . 0
1535182751 . 0 486582881 . 0
1 1
1 4
6 / 1 6 / 4
~
~
=
=

e e
F F a F b F
X x X X
29
Integration, Integrals
2. INTEGRALS
What would happen if we computed midpoint sums for a function
which might assume negative values in the interval [a, b]?
Where f(m
i
) < 0, the product
f(m
i
)Ax is also negative. Thus, the
midpoint sums

will approximate the signed area
of the region between the x-axis and
the graph of f, over [a, b]. This is the
algebraic sum of the area above the
axis, minus the area below the axis.
x m f b a f S
n
i
i n
A =

=1
) ( ]) , [ , (
(material continues)
Integration. I ntegrals
a
b
+

I C T
30
Integration, Integrals
the integral of f over [a, b] is

and it represents the algebraic sum of the signed areas of the regions
between the horizontal axis and the graph of f, over [a, b].
}
b
a
dx x f ) (
x m f dx x f
n
i
i
n
b
a
A =

}
=

1
) (
lim
) (
31
Integration
Approximating area

- Values from Midpoint Sums.xls can be positive,
negative, or zero

- Values from Integrating.xls can be positive,
negative, or zero
dq q D q D q dq q D
max
q
sold
q
sold sold
sold
q
} }
= = ) (
Sold
Not
) ( ) (
Surplus
Consumer
0
. ) (
Revenue
Possible Total
0
dq q D
max
q
}
=
Integration, Applications

(material continues)
Integration. Applications: page 6
Revenue computations for an arbitrary demand function work in the
same way as those for the buffalo steak dinners.
Let D(q) give the price per unit for a good,that would result in the sale
of q units, and let q
max
be the maximum number of units that could be sold at
any price. That is, D(q
max
) = 0. The total possible revenue is given by

If q
sold
units are sold, then the revenue will be q
sold
D(q
sold
). The
following formulas give consumer surplus and lost revenue from units not
sold.

It is clear that
revenue + consumer surplus + not sold = total possible revenue.

I C T
33
Integration
Ex4. Suppose a demand function was found to
be
. Determine
the consumer surplus at a quantity of 400 units
produced and sold.
( ) 196 . 321 225 . 0 0001392 .
2
+ = q q q D

34
revenue + consumer surplus at 400 units
35
Integration
Ex. (Continued)

Calculate Revenue at 400 units

( )
( ) ( )
( )
60 . 83569 \$
924 . 208 400
400 400
) (
=
=
=
=
=
D
q D q q R
q D q q R
sold sold sold
36
Integration
Ex. (Continued)

\$107,508.80 \$83,569.60 = \$23,939.20

So, the consumer surplus is \$23,939.20
) ( } ) ( {
Surplus
Consumer
0
sold sold
q
q D q dq q D
sold
=
}
37
Integration
Formula for consumer surplus

Income stream
- revenue enters as a stream
- take integral of income stream to get total
revenue
( ) ( )
}

0
0
0
q
q R dq q D
38
Integration Applications-oct1st
Fundamental Theorem of Calculus

-

Example : applies to p.d.f.s and c.d.f.s
Recall from Math 115a

( ) ( ) ( ) a F b F dx x f
X X
b
a
X
=
}
Fundamental Theorem of Calculus. For many of the functions, f,

which occur in business applications, the derivative of with

respect to x, is f(x). This holds for any number a and any x, such that the
closed interval between a and x is in the domain of f.
, ) ( du u f
x
a
}
39
Integration, Applications
Example 4.
The Plastic-Is-Us Toy Company
incoming revenue -as an income stream(rather than a collection of discrete
payments)
At a time t years from the start of its fiscal year on July 1 the company expects
to receive revenue at the rate of A(t) million dollars per year
Records from past years indicate that Plastic-Is-Us can model its revenue
rate
A(t) = 110t
5
+ 330t
4
330t
3
+ 110t
2
+3.174 million dollars per year.

40
Integration, Applications
0
2
4
6
8
0 0.25 0.5 0.75 1
t
A(t)
Oct. 1 Jan. 1 April 1 July 1 July 1
The chief financial officer wants
to compute the total amount of revenue that Plastic-Is-Us will receive in one
year.
The income stream, A(t), is a rate of change in money, given in million dollars
per year.
the units along the t-axis are years
the area of a region under the graph of A(t) is given in
(millions of dollars/year)(years) =millions of dollars.

41
Since gives the area between
the t-axis and the graph of

A(t), over the interval [0, T], it can be
shown that the integral gives the total
amount of money, in millions of dollars,
that will be received from the income
stream in the first T years.

}
T
dt t A
0
) (
42
Integration, Applications
dollars million 007 . 5 174 . 3 110 330 330 110
1
0
2 3 4 5
= + + +
}
dx x x x x

Use I ntegrating.xls to compute the total income received by Plastic-
Is-Us during the period from 0 to 1 year. (Remember that we must use x, not
t, as the variable of integration in I ntegrating.xls.)

43
The total revenue, in dollars, received from an income stream of
A(t) dollars per year, starting now and continuing for the next T years is

given by
. ) (
0
}
T
dt t A
Integration, Applications
Integration. Applications: page 12
In addition to the total revenue, a company would often like to know
the present value of its income stream during the next T years (0 s t s T),
assuming that money earns interest at some annual rate r, compounded
continuously.

Suppose that money earns at an annual rate, r, compounded
continuously. The present dollar value of an income stream of A(t)
dollars per year, starting now and continuing for the next T years is

given by
. ) (
0
}

T
t r
dt e t A
44
Integration, Applications
that we considered in Example 4. Recall that they have an
income stream of A(t) = 110t
5
+ 330t
4
330t
3
+ 110t
2
+3.174
million dollars per year. The management of Plastic-Is-Us would
like to know the present value of its income stream during the
next year (0 s t s 1), assuming that money earns interest at an
annual rate of 5.5%, compounded continuously.
Applying the integral formula for present value to Plastic-Is-Us, we
use I ntegrating.xls to find that the present value of their income stream for one
year, starting on July 1, is

million dollars.

( ) 879 . 4 174 . 3 110 330 330 110
1
0
055 . 0 2 3 4 5
= + + +
}

dt e t t t t
t
45
Integration, Calculus
the inverse connection between integration and differentiation is
called the Fundamental Theorem of Calculus.
Fundamental Theorem of Calculus. For many of the functions, f,

which occur in business applications, the derivative of with

respect to x, is f(x). This holds for any number a and any x, such that the
closed interval between a and x is in the domain of f.
, ) ( du u f
x
a
}
Example 7. Let f(u) = 2 for all values of u. If x > 1, then
integral of f from 1 to x is the area of the region over the interval [1, x],
between the u-axis and the graph of f.
46
Integration, Calculus
The region whose area
is represented by the integral is
rectangular, with height 2 and
width x 1. Hence, its area is
2(x 1) = 2x 2, and
0
1
2
3
0 1 2 3 4 5
u
f (u)
(1, 2) (x, 2)
x
2
}
x
du u f
1
) (
x 1
. 2 2 ) (
1
=
}
x du u f
x
In the section Properties and Applications of Differentiation, we saw
that the derivative of f(x) = mx + b is equal to m, for all values of x. Thus, the

derivative of with respect to x, is equal to 2. As predicted by the

Fundamental Theorem of Calculus, this is also the value of f(x).
The next example uses the definition of a derivative as the limit of
difference quotients.
, ) (
1
}
x
du u f
47
Integration, Calculus
Example 8. Recall the income stream of A(t) = 110t
5
+ 330t
4

330t
3
+ 110t
2
+3.174 million dollars per year that was expected by the
Plastic-Is-Us toy company in Example 4 of Applications. Let G(T) be the total
income that is expected during the first T years, for 0 s T s 1. Picking a time T
= 0.5 years, we will check that the instantaneous rate of change of G(T), with
respect to T, is the same as A(T).

Note that We now wish to compute G'(0.5). Recall

that G'(T) is approximated by the difference quotient
for small values of h. We will let h = 0.0001, and use I ntegrating.xls to
evaluate G(0.5 + 0.0001) and G(0.5 0.0001). I ntegrating.xls rounds the
numerical values of integrals to four decimal places. For the present
calculation, we gain extra precision by copying the values from Cell N20 and
keeping all of their decimal places.
G(0.5 + 0.0001) = G(0.5001) = 2.79078611562868
G(0.5 0.0001) = G(0.4999) = 2.78946381564699
. ) ( ) (
0
}
=
T
dt t A T G
,
2
) ( ) (
h
h T G h T G

+
48
Integration, Calculus
These give a value of 6.6115 for the difference quotient

rounded to four decimal places. This is the

instantaneous rate of change in total income after 0.5 years. I ntegrating.xls

shows the same value for A(0.5).

Noting that we have

verified the Fundamental Theorem of Calculus. At T = 0.5, the derivative of

with respect to T, is equal to A(T).
, ) (
0
}
T
dt t A
, ) ( ) (
0
}
=
T
dt t A T G
,
0002 . 0
) 4999 . 0 ( ) 5001 . 0 ( G G