Business 2400, Winter 2013, Section

, Student Number

BUSINESS 2400
Sections 2, 4, and 56
Three-Hour Final Examination
Saturday, 13 April 2013, 7 to 10 pm
Please print your name (given name and surname) and tick your current programme and section
number. Other includes Diploma, B.Comm general, Business minors, other faculties, and undeclared majors. Your student number should appear at the top of this and every page.
Deacon 5:306:45
Tulett
12:301:45
Tulett
2:003:15
Given Name

Section 56
Section 2
Section 4

Surname

B.Comm co-op BBA

iBBA Other

1. The time allowed for completion is three hours.

2. The invigilator will provide every student with a copy of the two-page Course Summary Sheet.
Also, printed English/other language dictionaries are allowed. Other than these things, the exam
is closed-book.
3. All communicating electronic devices are prohibited.
4. Calculators may be used to assist with the calculations, however they cannot replace the requirement that you must explain how the solution was obtained.
5. Please show all work in order to receive full credit.
6. Be neat and legible. The marker will not search for the answers.
7. Marks for each question have been indicated. The exam is out of 100.
8. University Regulations against academic dishonesty apply to this examination.
9. This exam contains 15 pages.
Please do not write in the space below.

Problem 1 2 3 4 5 6 7 8 Total
Mark
Out of
12 13 12 14 10 19 13 7 100

Business 2400, Winter 2013, Section

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1. (12 marks) A linear optimization model has been made for a metal fabricating shop where the
variables are the number of screws, nuts, and bolts made per minute. The objective function is in
dollars; for example each screw gives a profit of $0.17 (or 17 cents) each. There are four operations:
milling; cutting; lathework; and packaging. The spreadsheet formulation (with final values) is:
A
1
2
3
4
5
6
7
8
9
10

OFV
Maximize

Constraints
Milling
Cutting
Lathe
Packaging

B
C
D
E

21.16 Screws
Nuts
Bolts
0.17
0.09
0.13
100
0
32

RHS
2
3
6
1

3
4
11
1

5
7
0
2

360
524
600
164

<=
<=
<=
<=

360
540
600
330

Using the Sensitivity Report (given at the end), answer the following questions:
(a) (1 mark) State the solution in words.

Checking the allowable ranges, determine what would happen to the objective function value in
each of the following situations (considered independently). (Assume that all proposed changes are
feasible.)
(b) (2 marks) The price of each nut rises by $0.15.

(c) (2 marks) An extra 100 units of milling becomes available.

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(d) (5 marks) The number of units of lathework increases by 288, but the number of units of
milling falls by 40.

(e) (2 marks) The price per bolt falls by $0.05.

VariableCells
Cell
Name
$B$4 Screws
$C$4 Nuts
$D$4 Bolts

Final
Reduced
Objective
Allowable
Allowable
Value
Cost
Coefficient
Increase
Decrease
100
0
0.17
1E+30 0.111454545
0 0.204333333
0.09 0.204333333
1E+30
32
0
0.13
0.295
0.13

Constraints
Cell
$E$7
$E$8
$E$9
$E$10

Name
Milling
Cutting
Lathe
Packaging

Final
Value
360
524
600
164

Shadow
Constraint
Allowable
Price
R.H.Side
Increase
0.026
360 11.42857143
0
540
1E+30
0.019666667
600
480
0
330
1E+30

Allowable
Decrease
160
16
600
166

Business 2400, Winter 2013, Section

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2. (13 marks) An electronics shop is about to buy some high-definition televisions (HDTVs) with
720p resolution. They can be ordered from the manufacturer at a cost of $230 each. The selling price
will be set at $330 each. Demand is estimated as being between 12 and 15 inclusive with probabilities
0.1 for 12, 0.4 for 13, 0.3 for 14, and 0.2 for 15. After this purchase, they will only order 1080p
resolution HDTVs; any leftover of these 720p TVs will be marked down to $190 each (all leftover
stock will sell with no problem at this price).
(a) (8 marks) We wish to determine how many 720p HDTVs should be ordered, according to the
following decision criteria: (i) Expected Value, (ii) pessimism (the textbook calls this maximin),
(iii) optimism (maximax), and (iv) Hurwicz (realism) with a coefficient of optimism (realism) of
0.6. Do this by using a calculator to fill in all the numbers in the range B4:I7, and state the four
recommendations clearly.

A
1 Buy
2
$230.00
3
4
12
5
13
6
14
7
15
8 Prob.

Sell
$330.00
12
13

E
F
Salvage
$190.00 (i)
14
15 EV

0.1

0.3

0.4

0.2

G
(ii)
Pess.

H
(iii)
Opt.

I
(iv)
Hurwicz

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(b) (2 marks) Determine the EVPI.

(c) (3 marks) Verify the solution found in (a) (i) by using the marginal analysis formula.

Business 2400, Winter 2013, Section

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3. (12 marks) Formulate (but do not solve) an algebraic model for the following situation.
(a) (7 marks) A company makes regular and premium coffee, each being made and sold by the
Tonne (1000 kg). A Tonne of regular coffee gives a profit of $150 each, while each Tonne of premium
coffee gives a profit of $260. They can sell at most 900 Tonnes of the regular coffee and at most 300
Tonnes of the premium coffee. Each product spends time on three operations as follows:
Minutes per Tonne Minutes
Operation Regular Premium Available
Packaging
4
6
7100
Roasting
2
4
4200
Grinding
5
8
8700
For every Tonne of premium coffee made, there must be at least two Tonnes of regular coffee made.
For every two Tonnes of premium coffee made, there can be at most seven Tonnes of regular coffee
made.

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(b) (5 marks) Suppose that things are the same as before but now they can purchase up to 500
minutes (all, none, or any fraction of this amount) of additional roasting time at a cost of $2 per
minute, and can purchase an unlimited amount of extra grinding time at a cost of $3 per minute. State
what changes need to be made to the model given in part (a) (you may write the entire new model
out in full if you wish, but all thats needed is to state whats different). (Hint: you need two more
variables.)

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4. (14 marks) A company owns production facilities in Berlin, Savannah, and Tokyo which can
ship 400, 300, and 500 units per month respectively. They have four distribution centres in Darwin, New York, Paris, and Vancouver which need 150, 250, 290, 210 units per month respectively.
Shipping costs per unit are:
Darwin
Berlin
78
Savannah
64
21
Tokyo

New York
34
15
71

Paris
12
40
63

Vancouver
65
45
39

(a) (9 marks) Formulate an algebraic model for this transportation problem. (Use numbers rather
than parameters.)

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(b) (5 marks) If Berlin and Tokyo could use Savannah as a transshipment point, what new cost
data do we need, and how would the model given in (a) need to be modified? [Dont repeat part (a);
just show what is new.]

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5. (10 marks) The Avalon Regional Government has six sectors which need fire protection. Adequate fire protection can be provided in each sector either by building a fire station in that sector, or
by building a fire station in another sector which is no more than a 12 minute drive away. The time to
drive between the centres of each pair of sectors is given in the following table. (Because of one-way
streets and left-turns the times are not symmetric.) The cost to build a fire station is the same in each
sector. We wish to formulate a model whose purpose is to choose which sectors should have their
own fire station.
To
From 1 2 3 4 5 6
1
0 7 15 21 23 18
2
9 0 17 20 18 11
3
13 18 0 12 8 19
4
18 14 20 0 28 10
5
13 10 12 14 0 23
6
19 13 7 16 8 0

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6. (19 marks) Theres a 10% chance that pirates in the 17th century buried their treasure (bars of
silver and gold) about 35 to 40 metres beneath the surface at a particular location. If so, it would be
worth about $8,000,000 at todays prices. Otherwise, theres a 90% chance that theres no treasure.
To dig to a depth of 40 metres (which would be enough to either find the treasure, or conclude that
theres no treasure at this location) would cost $750,000.
A test based on magnetism is available at a cost of $25,000; the result will be either positive,
inconclusive, or negative. If the treasure is present then theres a 70% chance of a positive result;
a 16% chance of an inconclusive result, and a 14% chance of a negative result. If the treasure is not
present these percentages become 10%, 26%, and 64% respectively. The company has decided that if
they do a magnetism test and if it turns out to be negative, then they will not dig for treasure.
Theres also a second test available. This could only be used after doing a magnetism test and
obtaining an inconclusive result, and if used would cost $15,000. If theres treasure present the
second test will report favourable with probability 0.8; if theres no treasure the second test will
report unfavourable with probability 0.85. If an unfavourable result is obtained then they will not
dig for treasure.
Draw a decision tree and solve it using the rollback procedure to determine a recommendation
for this situation. Please use up to five decimal place accuracy for the Bayesian revisions (use either
tables or probability trees; you do not need to calculate any probabilities which are not needed for the
decision tree). [There is more space on the next page.]

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Business 2400, Winter 2013, Section

Continuation of problem 6.

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Business 2400, Winter 2013, Section

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7. (13 marks)
(a) (10 marks) Mary has $8000 to invest in a portfolio. Her investment alternatives and their
expected returns are:
Investment
Description Expected Return
1
RRSP (retirement)
5.2%
2
Employers retirement plan
7.6%
3
Mutual Fund
6.3%
She will put at least $2000 into each investment, and cannot invest more than $8000 in total. In
addition, she has three goals which may be violated if need be. Goal 1 is for the expected annual return
to be at least $800. Goal 2 is to invest no more than $5000 in the two retirement plans combined.
Goal 3 is to invest at least twice as much in investment 2 as in investment 1.
Goal 1 is twice as important as Goal 2, and Goal 2 is three times as important as Goal 3.
Formulate but do not solve a goal optimization model for this situation.

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Business 2400, Winter 2013, Section

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(b) (3 marks) When using Excel to solve a goal programming problem, briefly explain how preemptive (ranked) and non-preemptive (weighted) problems are treated differently.

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8. (7 marks) A wealthy couple have three children named Xena, Yuri, and Zoe. To give their
children a lesson in entrepreneurship, the parents have decided to invest a total of $35,000. They
asked their children what they could accomplish if they were given some of the money. Xena said,
Whatever you give me, I will return not only the principal but the square
root of the principal as
well. (For example, if she were given $1600, she would return 1600 + 1600 = 1640 dollars, for
a net return of $40.) Yuri thought that he could do better than his younger sister: Ill return the
principal plus twice the square root of the principal, he boasted. Their older sister Zoe felt that she
had to do even better: Ill return the principal plus three times the square root of the principal. The
parents wonder how the $35,000 should be distributed to their children, so as to maximize the total
net return.
(a) (5 marks) Formulate an algebraic model for this problem.

(b) (2 marks) In terms of whatever cells you choose to represent the variables, give the expression
in Excel format for the objective cell.

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