APW274 Management Science Session 242
TUTORIAL – LP SENSITIVITY ANALYSIS
1. Kelson Sporting Equipment, Inc., makes two different types of baseball gloves: a regular model
and a catcher’s model. The firm has 900 hours of production time available in its cutting and
sewing department, 300 hours available in its finishing department, and 100 hours available in
its packaging and shipping department. The production time requirements and the profit
contribution per glove are given in the following table:
Production Time (hours)
Cutting and Packaging and
Model Finishing Profit/Glove
Sewing Shipping
Regular 1 1# 1# $5
2 8
Catcher’s 3# 1# 1# $8
2 3 4
Assume that the company is interested in maximizing the total profit contribution.
a. What is the linear programming model for this problem?
b. Find the optimal solution using the graphical solution procedure. How many gloves of
each model should Kelson manufacture?
c. What is the total profit contribution Kelson can earn with the given production
quantities?
d. How many hours of production time will be scheduled in each department?
e. What is the slack time in each department?
The computer solution is given as below:
f. Which constraints are binding?
g. What are the dual values for the resources? Interpret each.
h. If overtime can be scheduled in one of the departments, where would you recommend
doing so?
i. Determine the objective coefficient ranges.
APW274 Management Science Session 242
j. Interpret the ranges in part (a).
k. Interpret the right-hand-side ranges.
l. How much will the value of the optimal solution improve if 20 extra hours of packaging
and shipping time are made available?
2. Innis Investments manages funds for a number of companies and wealthy clients. The
investment strategy is tailored to each client’s needs. For a new client, Innis has been authorized
to invest up to $1.2 million in two investment funds: a stock fund and a money market fund.
Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of
the money market fund costs $100 and provides an annual rate of return of 4%.
The client wants to minimize risk subject to the requirement that the annual income from the
investment be at least $60,000. According to Innis’ risk measurement system, each unit invested
in the stock fund has a risk index of 8, and each unit invested in the money market fund has a
risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the
riskier investment. Innis’s client also specified that at least $300,000 be invested in the money
market fund.
a. Determine how many units of each fund Innis should purchase for the client to minimize
the total risk index for the portfolio.
b. How much annual income will this investment strategy generate?
c. Suppose the client desires to maximize annual return. How should the funds be
invested?
The computer solution is given as below:
d. Specify the objective coefficient ranges.
e. How much annual income will be earned by the portfolio?
APW274 Management Science Session 242
f. What is the rate of return for the portfolio?
g. What is the dual value for the funds available constraint?
h. Suppose the risk index for the stock fund (the value of ) increases from its current value
of 8 to 12. How does the optimal solution change, if at all?
i. Suppose the risk index for the money market fund (the value of ) increases from its
current value of 3 to 3.5. How does the optimal solution change, if at all?
