DISC 212 Session 12

Introduction to Management
Science
Thursday 12th October 2023
Recap
• Term Exam 1
Important Dates
• Second Exam Monday 6th November
– 6:30-8:30pm
– Labs 1, 2 and 4 (Library Building)
– Topics
• Sensitivity Analysis
• Network Models
• Predictive Modeling
Sensitivity Analysis in the context of LP
MAX (or MIN): c1X1 + c2X2 + … + cnXn

Subject to: a11X1 + a12X2 + … + a1nXn <= b1
:
ak1X1 + ak2X2 + … + aknXn <= bk
:
am1X1 + am2X2 + … + amnXn = bm
How sensitive is a solution to changes

in ci, aij, and bi?
Favorite Problem!
MAX: 350X1 + 300X2 } profit
S.T.: 1X1 + 1X2 <= 200 } pumps
9X1 + 6X2 <= 1566 }
labor
12X1 + 16X2 <= 2880 } tubing
X1
SOLUTION , X2X1>== 122,
0 X2 = 78, Optimal Profit: $66,100
} non-
negativity
What if
• The profit per tub were to change?
• The available number of pumps or labor or tubing were to change?
• The optimal value of a decision variable were forcibly changed?
• More or less labor is required to produce X1?
How can you answer these questions?
• Change the numbers and run the model again
– Sometimes, there is no alternative!
• Or
• Look at the sensitivity report generated by

Solver
– You should select “Assume Linear” option to let
Solver provide maximum sensitivity information
Changes in Objective Coefficients Change
X2
the Slope of the Level Curve
250
original level curve
200
new optimal solution
150
original optimal solution
100
new level curve
50
0
0 50 100 150 200 250 X1
Key Point I
• Values in the “Allowable Increase” and
“Allowable Decrease” columns for the
changing cells (Decision Variables) indicate the
amounts by which an objective function
coefficient can change without changing the
optimal solution (Mix), assuming all other
coefficients remain constant
– If the value is 0, multiple optimal solutions exist
Shadow Price
Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$3 Number to make Aqua-Spas 122 0 350 100 50
$C$3 Number to make Hydro-Luxes 78 0 300 50 66.67
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$D$7 Pumps Req'd Used 200 200 200 7 26
$D$8 Labor Req'd Used 1566 17 1566 234 126
$D$9 Tubing Req'd Used 2712 0 2880 1E+30 168

Key Point II
• The shadow price of a constraint indicates the amount by which the
objective function value changes given a unit increase in the RHS value of
the constraint, assuming all other coefficients remain constant
– Shadow prices hold only within RHS changes falling within the values in
“Allowable Increase” and “Allowable Decrease” columns.
– Shadow prices for nonbinding constraints are always zero.
• In other words …
– The absolute value of the shadow price always indicates the amount by which the
objective function will be improved if the corresponding constraint is loosened.
• A “≤” constraint is loosened by increasing its RHS value
• A “≥” constraint is loosened by decreasing its RHS value
Question
• Suppose a new Hot Tub (the Typhoon-Lagoon)
is being considered. It generates a marginal
profit of $320 and requires:
– 1 pump
– 8 hours of labor
– 13 feet of tubing
• Would it be profitable to produce any?

Reduced Cost
Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$3 Number to make Aqua-Spas 122 0 350 100 20
$C$3 Number to make Hydro-Luxes 78 0 300 50 40
Number to make Typhoon-
$D$3 Lagoons 0 -13 320 13.33333333 1E+30
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$7 Pumps Req'd Used 200 200 200 7 26
$E$8 Labor Req'd Used 1566 17 1566 234 126
$E$9 Tubing Req'd Used 2712 0 2880 1E+30 168
Key Point III
• The reduced cost of a product is the difference
between its marginal profit and the marginal
value of the resources it consumes
– If marginal profits < marginal value of the goods
required for production, product will not be part
of the optimal mix
Reduced Cost
• Suppose a Typhoon-Lagoon required only 7
labor hours rather than 8. Is it now profitable
to produce any?
$320 - $200*1 - $16.67*7 - $0*13 = $3.31 = Yes!
• What is the maximum amount of labor
Typhoon-Lagoons could require and still be
profitable?
– We need $320 - $200*1 - $16.67*L - $0*13 >=0
3
– The above is true if L3 <= $120/$16.67 = 7.20

Network Modeling
• Wide range of problems can be modeled as
“network problems”
• Collection of nodes connected be links/arcs
– Transshipment
– Shortest path
– Maximal flow
– Transportation/assignment
– Generalized network flow
– Minimum spanning tree
Network Modeling
• Three types of nodes
– Supply
– Demand
– Transshipment
• Convention: negative numbers to represent
supply and positive numbers to represent
demand
Transshipment Problem
+100
Boston $30
$50 2 Newark -200
1
Columbus
+60
3 $40
$40
$35 $30 Richmond
+80
Atlanta 4
+170 5
$25
$45 $50
$35
+70 Mobile
6 J'ville -300
$50 7
• Decision variables
– Xij = number of cars being shipped (or flowing)
from node i to node j
• Objective Function
MIN: 30X12 + 40X14 + 50X23 + 35X35
+40X53 + 30X54 + 35X56 + 25X65
+ 50X74 + 45X75 + 50X76
• Constraints
For Minimum Cost Network Apply This Balance-of-Flow

Flow Problems Where: Rule At Each Node:
Total Supply > Total Demand Inflow-Outflow >= Supply or

Demand
Total Supply < Total Demand Inflow-Outflow <=Supply or Demand
Total Supply = Total Demand Inflow-Outflow = Supply or Demand

• Total Demand (480) < Total Supply (500)
• For each node the constraint will be

Inflow – outflow >= Supply or Demand
• Constraint for Node 1

–X12 – X14 >= – 200
• Flow constraints
–X12 – X14 >= –200 } node 1
+X12 – X23 >= +100 } node 2
+X23 + X53 – X35 >= +60 } node 3
+ X14 + X54 + X74 >= +80 } node 4
+ X35 + X65 + X75 – X53 – X54 – X56 >= +170 } node 5
+ X56 + X76 – X65 >= +70 } node 6
–X74 – X75 – X76 >= –300 } node 7
• Non-negativity conditions
Xij >= 0 for all ij
Shortest Path Problem
Shortest Path Problem
• Special case of the transshipment problem
– There is one supply node with a supply of -1
– There is one demand node with a demand of +1
– All other nodes have supply/demand of +0
Shortest Route

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Introduction to Management

MAX (or MIN): c1X1 + c2X2 + … + cnXn

How sensitive is a solution to changes

• Look at the sensitivity report generated by

$B$3 Number to make Aqua-Spas 122 0 350 100 50

$C$3 Number to make Hydro-Luxes 78 0 300 50 66.67

$D$7 Pumps Req'd Used 200 200 200 7 26

$D$8 Labor Req'd Used 1566 17 1566 234 126

$D$9 Tubing Req'd Used 2712 0 2880 1E+30 168

• Would it be profitable to produce any?

– The above is true if L3 <= $120/$16.67 = 7.20

For Minimum Cost Network Apply This Balance-of-Flow

Total Supply > Total Demand Inflow-Outflow >= Supply or

Total Supply = Total Demand Inflow-Outflow = Supply or Demand

• For each node the constraint will be

• Constraint for Node 1

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