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Analytical Models for Business International Master of Science in Business Administration Spring 2011 Ana Groznik

Analytical Models for Business

International Master of Science in Business Administration

Spring 2011

Ana Groznik

April 28/29, 2011 2 nd class out of 6

Homework #1

April 28/29, 2011 2 n d class out of 6 Homework #1 A total of 12

A total of 12 million EUR is allocated for the loans in the next quarter.

Type of Loan

Interest Rate

Probability of Bad Debt

Personal

0,140

10%

Car

0,130

7%

Home

0,120

3%

Farm

0,125

5%

Commercial

0,100

2%

Bad debts are assumed unrecoverable and produce no interest revenue. At least 40% of all funds must be allocated to farm and commercial loans. Home loans must equal at least 50% of the personal, car and home loans. The overall ratio of bad debts on all loans may not exceed 4%.

Homework #1 - Solutions Decision variables: x 1 = personal loans (in millions) x 2

Homework #1 - Solutions

Decision variables:

x 1 = personal loans (in millions) x 2 = car loans (in millions) x 3 = home loans (in millions) x 4 = farm loans (in millions) x 5 = commercial loans (in millions)

Type of Loan Interest Rate Probability of Bad Debt Personal 0,140 10% Car 0,130 7%
Type of Loan
Interest Rate
Probability of Bad Debt
Personal
0,140
10%
Car
0,130
7%
Home
0,120
3%
Farm
0,125
5%
Commercial
0,100
2%
7% Home 0,120 3% Farm 0,125 5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April

Objective function:

Farm 0,125 5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6)

Constraints:

5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6) The Diet
5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6) The Diet
5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6) The Diet
5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6) The Diet
5% Commercial 0,100 2% Objective function: Constraints: Ana Groznik April 28/29, 2011 (Class 2/6) The Diet

Ana Groznik

April 28/29, 2011 (Class 2/6)

The Diet Problem

3/14

Groznik April 28/29, 2011 (Class 2/6) The Diet Problem 3/14 Maggie loves desserts, but due to

Maggie loves desserts, but due to the upcoming wedding, she is on a diet. However, she is allowed to small daily dessert indulgences, but that should not contribute more than 450 calories in total. Also, total fat consumed daily with the dessert should not exceed 25 g. Maggie decided to sooth her sweet tooth with her two favorite desserts:

cookies and ice cream. Each cookie weights 37 g, contains 120 calories and 5 g of fat. Each serving of ice cream weights 65 g, contains 160 calories and 10 g of fat. Maggie insists on having at least 120 g of desserts per day. She is not indifferent to the taste of the two dessert options: she assigns index 95 to ice cream per gram and 85 cookie per gram (she prefers 1 g of ice cream over 1 g of cookie).

What should be Maggie's daily dessert plan to maximize the taste enjoyed, and to stay within the diet constraints?

The Diet Problem

x 1 = daily number of cookies x 2 = daily servings of ice cream

number of cookies x 2 = daily servings of ice cream Ana Groznik April 28/29, 2011
number of cookies x 2 = daily servings of ice cream Ana Groznik April 28/29, 2011

Ana Groznik

of cookies x 2 = daily servings of ice cream Ana Groznik April 28/29, 2011 (Class

April 28/29, 2011 (Class 2/6)

Possible model solvings

April 28/29, 2011 (Class 2/6) Possible model solvings 5/14 Solving models is not simple solving of

5/14

April 28/29, 2011 (Class 2/6) Possible model solvings 5/14 Solving models is not simple solving of

Solving models is not simple solving of N equations with M unknowns

Sometimes we can solve simple models by analytical thinking, or

following intuition.

But usually, specialized software is needed. Solver in Excel is a simple tool, but very practical and easy to use.

Solver in Excel

Office Button/ Excel Options/ Add-ins/Solver

Once Solver is added, it can be activated under Data/ Analysis

Mathematical differentiation & derivatives of a function?

Differentiation

Differentiation • Relevant differentiation rules for this course Ana Groznik April 28/29, 2011 (Class 2/6) 7/14

Relevant differentiation rules for this course

• Relevant differentiation rules for this course Ana Groznik April 28/29, 2011 (Class 2/6) 7/14
• Relevant differentiation rules for this course Ana Groznik April 28/29, 2011 (Class 2/6) 7/14
• Relevant differentiation rules for this course Ana Groznik April 28/29, 2011 (Class 2/6) 7/14

Ana Groznik

April 28/29, 2011 (Class 2/6)

7/14

this course Ana Groznik April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April

Differentiation Rules Examples

April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)
April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)
April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)
April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)
April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)
April 28/29, 2011 (Class 2/6) 7/14 Differentiation Rules Examples Ana Groznik April 28/29, 2011 (Class 2/6)

Practical Example #1

Practical Example #1 Retailer is buying product for fixed unit price 4 € , but he

Retailer is buying product for fixed unit price 4 , but he can set any

retail price p. However, higher retail price leads to lower demand.

Demand can be approximated by D = 100 - p. What is the optimal retail price?

by D = 100 - p. What is the optimal retail price? How do we know
by D = 100 - p. What is the optimal retail price? How do we know
by D = 100 - p. What is the optimal retail price? How do we know

How do we know this calculated p leads to maximizing profit, and not minimizing?

Ana Groznik

April 28/29, 2011 (Class 2/6)

Practical Example #2

9/14

April 28/29, 2011 (Class 2/6) Practical Example #2 9/14 You are in charge of organizing a

You are in charge of organizing a small promotional event for your company. From the budget of 1000you intend to buy cakes for the attendees. After some testing, you find acceptable two cake options:

chocolate cake for 12 unit price, and cheesecake for 10 unit price. Chocolate cake is cut into 16 portions, cheesecake into 12 portions. Obviously, you know which cake option enables you to serve more portions, but you would also like to offer variety.

After some deliberation, you decided a good criteria for how many cakes of each type to buy would be a product of individual portions for both cake types. How much money from your budget did you finally spend on one and the other cakes?

Practical Example #2

Practical Example #2 • Would you expect a result like this? • How do we know
Practical Example #2 • Would you expect a result like this? • How do we know
Practical Example #2 • Would you expect a result like this? • How do we know
Practical Example #2 • Would you expect a result like this? • How do we know

Would you expect a result like this?

How do we know this calculated p leads to maximizing criteria, and not minimizing?

Why is the suggested criteria appealing?

Ana Groznik

April 28/29, 2011 (Class 2/6)

Practical Example #3

11/14

April 28/29, 2011 (Class 2/6) Practical Example #3 11/14 A charity organization is receiving large quantities

A charity organization is receiving large quantities of donated food products that must be sorted out properly before are distributed to the families in need. The donated items are laid on a large table, and volunteers standing around the table are taking item by item from the table to put it in the appropriated bin: for example, yogurts into a separate bin, canned soups into another, etc. For the efficiency of the process, it is important that the perimeter of the table (the length of all sides of the rectangle table) is as large as possible, so that many volunteers can work simultaneously. But it is also important that the inner surface of the table is large - and the inner

surface is considered 0,5 m away from the edges. However, because of the

total weight issues, the table itself (without legs) cannot be heavier than

80kg, and 1m 2 weights 5kg. What would be optimal size of the table, if you value the working surface three times more than the perimeter of the table?

Step-by-step solution for this example will be uploaded on the course website.

Challenge problem

Challenge problem In how many different ways it is possible to arrange four students into groups

In how many different ways it is possible to arrange four students into groups according to the rule 0 < N < 4, where N is the number of group members?

The answer: 14 Think about it!

Ana Groznik

April 28/29, 2011 (Class 2/6)

13/14

about it! Ana Groznik April 28/29, 2011 (Class 2/6) 13/14 New homework assignment • Friday, around

New homework assignment

Friday, around 15:00, new assignments will be posted on the course website.

Follow the instructions!

If in doubt even after discussion with other students, explain in your homework report exactly what is your doubt - but follow your instinct and do what YOU think makes MOST sense.