Chapter 1 aden ‘Marginal revenue The rate of change of total revenue with espect to volume. Breakeven point The volume at which total revenue equals total cost. Detine the tems management sience and operations research, 2 Listand discus te steps ofthe decision-making process. 3. Discuss the different role played by the qualitative and quantitative approaches to man- ageral decision making. Why i it important for a manager or decision maker to have & ‘00d understanding of both ofthese approaches wo decision making? 4. A firm recently built new plant tha will use more than SO production lines and machines to produce over $00 diferent produc. The production scheduling decisions are critical because sales will be lost f customer demand isnot met om time. If no individ in the frm has had experience with this production operation, an if new production schedules must be generated each week, why shouldbe fim considera quanttave approach othe production scheduling problem? 5. Whatare the advantages of analyzing and experimenting with a model as opposed to areal objet or situation? (6. Suppose a manager must choose hetwoen the following two mathematical models of a sive situation: (a) a relatively simple model that isa reasonable approximation of the real situation and (b) a thorough and complex mode! that is the most accurate mathematical representation ofthe real situation possible, Why might the model descited in par (a) be preferred by the manager? “1. Suppose you ae going on a weekend trip oa city that sd miles away. Develop a model that determines your round-sip gasoline costs. What assumptions or approximations are necessary to teat this made asa deterministe model” Are these assumptions or sppexi- tations acogable fo you? 4 Recall he production model rom Section 1.3 SELF [ou eT w= #20 ‘Suppose the firm in this example considers a Second product tht has 2 unit profit of $5 and requires 2 hours foreach unit produced. Assume total production capacity remains 40 units. Use yas the numberof units of product 2 produced, Show the mathematical model when both products are considered simaltanusly ‘entity the controllable and uncontrollable inputs fr thie model Draw te flowchart ofthe inpet-output process for this model (see Figure 1). What ae the optimal soltion values of x andy? Is this model a deterministic ora stochastic model? Explain, 9. Suppose we modify the production model from Section 1. obtain the following math- ematical model pepper Max 10x ar= 40Problems 2 10. n 12 where a isthe numberof hours required foreach unit priced. With a = 5 he optimal solution isx = 8. If we bave a stochastic model in which the value ofa varies between 3 and6(ie, a= 3,a= 4, a = 5, ora = 6) asthe possible values fr the numberof hours required per unit, what the optimal value for x? What problems does tis stochastic ‘model cause? ‘A retail store in Des Moines, Iowa, receives shipments of «particular product from Kansas City and Minneapolis. Let units of product received from Kansas City 1 ~ units of product received fom Minneapolis 1 Write an expression forthe total units of product received by the retail store in Des Moines Shipments from Kansas City cos $0.20 per wit, and shipments from Minneapolis cost $0.25 per unit. Develop an objective funeton representing the total cos of shipments to Des Moines. ©, Assuming the monthly demand atthe retail store i 5000 units, develop a constraint ‘that requires 5000 units o be shipped to Des Moines 44, Nosmore than 4000 units can be shipped from Kansas City and no more than 3000 ‘unis canbe shipped from Minneapolis ina month, Develop constraints to model this ©. Ofcourse, negative amounts cannot be shipped: Combine the objective funetion and ‘constraints developed to state a mathematieal model for satisfying the demsnd atthe Des Moines retail store at minimum cos. For most products, higher prices resultin a decreased demand, whereas lower prices result imam increased demand (economists refer to such products as normal goods). Let (d= annual demand fo = price perunit ‘Assume tht a firm accepts the following price-demand relationship as being a rcal- istic representation ofits market product in units 00-10 where p must be between $20 and $70. 1 How many unis can the firm sll atthe $20 per-unit price? At the S70 per-unit price? What happens to annual units demanded forte product fhe lim increases the pes- unit price from $26 to $277 From $42 to $43? From $68 o $62” What is the suggested relationship between per-unit price and annul demand forthe product in units? Show the mathematical model forthe tka revenve CTR), which isthe annual demand rulipie by the unit price. 4 Based on ther considerations, the frm’ management will only consider price alter~ natives of $30, $40, and $50, Use your model from part (b) to determine the pice al- ‘erative that wil maximize the total revenue, fe. What are the expected annual demand and the total revenue according to your recom- rended price? ‘The O'Neill Shoe Manufacturing Company will produce a special style shoe ifthe onder size is large enough to provide a reasonable profil. For each special-style order, the com- pany incurs fixed cost of $2000 for the production setup. The variable cost is $60 per pai, and each pi sll for $80, Lets indicate the numberof pairs of shoes produced, Develop a mathematial model forthe total cost of producing x pats of shoes.2 CChopler 1 Inodvction| 13. 1 18, 16. Let P indicate the total profit. Develop «mathematical model forthe total profitreal- ized from an order for x pits of shoes Whats the breakeven point? “Miccomedia offers computer training seminars cn varity of topics. Inthe seminars cach student works ata personal computer, practicing the particular activity thatthe instructor | peseating. Micromedia is curently planning a two-day seminar onthe use of Microsoft Excel in statistical analysis. The projected fe forthe seminars $600 pe student The cost for the conference room, instructor compensation, ab assistants, and promotion is $9600. “Miecomedia rents computers for its seminars a a cost of $40 per eompater pe da. Develop a model fr the total cost to put onthe seminar, Let x represent the number ‘of tudeats who encol inthe seminar bh. Develop a model forthe otal profit f students enrol in the seminae. ©, Mieromedia has forecasted an enrolment of 30 students for the seminar. How much profit wll be earned if its forecast is accurate? 4 Compute the breakeven point Eastman Publishing Company is considering publishing a paperback textbock on spread- set applications for business. The fixed cost of manuscript preparation, textbook design, and production setup i estimated to be $160,000. Variable production and material costs are estimated wo be $6 per book. Demand ove the ie the book s estimated tobe 4000 copes. ‘The publisher plans to sell the tat to ellege and university bookstores for $16 cach a. Whats the breakeven point? ‘What profit r loss canbe anticipated witha demand of 3500 copies? «©. Witha demand of 3500 copies, what i the minimum price per cops that he publisher rust charge to breakeven? 44 Ifthe publisher believes that the price per copy could be increased to $50.95 and not fect the anticipated demand of 4000 copies, what ation would you recommend? ‘What profit or loss ean be anticipated?” Preliminary plans are underway fr construction of new stadium fora majorleague base- ball tam, City officials question he number and profitability of the luxury corporate boxes planned for the upper deck ofthe stadium, Corporations and selected individuals may pur- ‘hase for $300,000. The fixed construction cos forthe upper-deck ara is estimated be $4,300,000, with variable cst of $150,000 for each box constrted. ‘Whats the breakeven point forthe mmber of luxury boxes inthe new stadium’? >. Preliminary drawings forte stadium show that space is available forth construction ‘of upto SO luxury boxes. Promoters indicat that buyers are availele and that all 50 ‘could be sold if constructed. What is your recommendation conceming the consiuc- tion of luxury boxes? What profit is anticipated? nancial Analysts, In, isan investment frm that manages stock poriolios fr a number liens. Anew client has requested that the firm handle an $800,000 portfolio, Asan ini- til investment strategy, te client would like to restrict the portfolio to a mix of the fol Towing two stocks: Price! ‘Estimated Annust Stock Share Returnfhare (Oil Alaska ‘$50 $6 Southwest Ptoleum $30 8 Let numberof shares of Oil Alaska umber of shares of Southwest PewoleumCase Problem Appendix 1.1 ‘Appenchc 1.1 Using Excl fr Breakeven Anais 2 4. Develop the objective function, assuming that the client deste to maximize the total ‘annual return, Show the mathematical expression foreach ofthe following three constrains (1) Toa investment fonds available are $800,000. (2) Maximum Oil Alaska investment is $500,000. (3) Maximum Southwest Petrleam investment is $450,000. ‘Note: Adding the x= 0 and y= O constrains provide near programming model forthe investment problem. A solution procedure for this mode wil be discussed in Chapter 7. 17. Models of inventory systems frequently consider the relationships among a begining in ventory, production quantity, « demand or sales, and an ending inventory. For a given production period j. et 5.4 ~ beginning inventory for perio j (ending inventory from period jhe previous period) Production quantity in period j ‘demand in period j tending inventory for period j | Write dhe mathematical relationship model that shows ending inventory asa fune- tion of beginning inventory, production, and demand. bb. What constraint shouldbe added if production capacity for period is given by C)? ©. What constraint should be added if faventory requirements for period j mantle an ending inventory of at eas? Scheduling a Golf League Chris Lane, the head professional at Royal Oak Country Club, must develop a schedule of ‘matches forthe couples’ golf league that begins its season at 4:00 ns. tomorrow. Eighteen couples signed up forthe league, and each couple must play every other couple over the {course ofthe 17-week season. Chris thought it would be fairly easy to develop a schedule, but after working on it fora couple of hours, he has been unable to come up with a sched- ule. Because Chris must have a Schedule ready by tomorrow afternoon, he has asked you tohelp him, A possible complications that ne of the couples told Chris that they may have to cancel forthe season. They told Chris they would let him know by 1:00 rs. morrow ‘whether they wil be able to play this season, Managerial Report Prepare arepor for Chris Lane. Yourrepet shoul include, at minimum, the following items 1. schedule that will enable each ofthe 18 couples to play every other couple over the ITawoek season. 2. A contingency schedule that can be used ifthe couple that contacted Chris decides to cancel forthe season, Using Excel for Breakeven Analysis In Section 1.4 we introduced the Nowlin Plastics production example to illustrate how {quantitative models can be used to help a manager determine the projected cost, revenue, and profit associated with an established produetion quantity or a forecasted sales volume. Inthis appendix we introduce spreadsheet applications by showing how to use Exeel to per- {orm a quantitative analysis ofthe Nowlin Plastics example,