Business 2400, Winter 2014, On-Campus, Student Number

BUSINESS 2400
Three-Hour Final Examination
Friday, 11 April 2014, 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.
Ke
Ke
Simmons
Tulett
Tulett

3:304:45
5:306:45
10:3011:45
12:301:45
2:003:15

Given Name

Section 1
Section 56
Section 3
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 16 pages.
Please do not write in the space below.

Problem 1 2 3 4 5 6 7 8/9 Total

Mark
Out of
14 13 12 14 10 16 14 7 100

Business 2400, Winter 2014, On-Campus, Student Number

1. (14 marks)
maximize 7X1
subject to
(1) 4X1
(2)
(3) 8X1
(4) 12X1

5X2

6X2
2X2
+ 4X2
+ 10X2

X1

24
7
32
60

X2

When this model is solved graphically we see that constraints (1) and (3) are binding, and the
optimal solution is X1 = 3, X2 = 2, and OFV = 31.
8

6
X2
5

i ne
ne
Li u e L
lue oval
va
s
Iso al I
im
ial
Tr Opt

(4)

(2)
(1)

Optimal
Solution

2
Feasible Region

(3)

1
0

6
X1

(continued on the next page)

Business 2400, Winter 2014, On-Campus, Student Number

(a) (4 marks) Suppose that the objective function is now maximize c1 X1 + c2 X2 . Perform a sensitivity analysis to determine when the current solution remains optimal in the following cases
(i) both c1 and c2 may vary (but remain > 0);
(ii) c2 = 5, c1 may vary;
(iii) c1 = 7, c2 may vary.
(b) (3 marks) Find the allowable decrease for the right-hand-side of constraint (1).
(c) (4 marks) Within the allowable range, suppose that b1 is added to the rhs of constraint (1).
Determine the expressions for X1 and X2 in terms of b1 .
(d) (3 marks) Using the objective function and the results from part (c), find the shadow price for
constraint (1).
The next page also provides space for your answer to this question.

Business 2400, Winter 2014, On-Campus, Student Number

(continuation from the previous page)

Business 2400, Winter 2014, On-Campus, Student Number

2. (13 marks) A music shop is about to buy some digital pianos. They can be ordered from
the manufacturer at a cost of $1400 each. The selling price will be set at $1800 each. Demand is
estimated as being between 10 and 13 inclusive with probabilities 0.2 for 10, 0.3 for 11, 0.4 for 12,
and 0.1 for 13. After this purchase, a new model of digital piano will replace the current model, so
any leftovers from this purchase will be marked down to $1250 each (all leftover stock will sell with
no problem at this price).
(a) (8 marks) We wish to determine how many digital pianos should be ordered, according to the
following decision criteria: (i) Expected Value, (ii) pessimism (the textbook used by sections 1
and 56 calls this maximin), (iii) optimism (maximax), and (iv) Laplace (equally likely). 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 $1,400.00
3
4
10
5
11
6
12
7
13
8 Prob.

Sell
$1,800.00
10
11

E
F
Salvage
$1,250.00 (i)
12
13 EV

0.2

0.4

0.3

0.1

G
(ii)
Pess.

H
(iii)
Opt.

I
(iv)
Laplace

Business 2400, Winter 2014, On-Campus, Student Number

(b) (4 marks) Give the regret matrix for this problem, and state the recommendation.

A
1 Buy
2 $1,400.00
3
4
10
5
11
6
12
7
13
8 Prob.

C
Sell
$1,800.00
10
11

E
F
Salvage
$1,250.00
12
13 EOL

0.2

0.4

(c) (1 mark) State the EVPI.

0.3

0.1

Business 2400, Winter 2014, On-Campus, Student Number

3. (12 marks) A lumber store stocks dowels in one standard length of 250 cm. A customer wants
the store to cut him forty dowels of length 122 cm, thirty-five dowels of length 96 cm, and seventy-five
dowels of length 64 cm.
(a) (1 mark) In the absence of any information about costs or revenues, what would be an appropriate objective?

(b) (11 marks) Formulate (but do not solve) a model for this situation.

Business 2400, Winter 2014, On-Campus, Student Number

4. (14 marks) A company makes calculators at facilities in Shanghai (China), Bonn (Germany),
and Cape Town (South Africa). These plants can make 1800, 900, and 2700 calculators per week
beyond the demand in the local markets of Eastern Asia, Germany, and Africa respectively. All
three plants can ship to markets elsewhere: Canada/USA, Latin America, Europe, and Western Asia.
The demands per week in these four markets are for 1500, 600, 750, and 2300 calculators per week
respectively. Calculators are shipped in boxes of 50. The shipping costs per box are as follows:
Canada/USA
From/To
Shanghai
180
Bonn
230
200
Cape Town

Latin America
270
250
210

Europe
205
80
185

Western Asia
120
190
220

(a) (10 marks) EITHER (i) give the algebraic model, defining variables of the form Xi, j , OR (ii) On
the next page, fill in the input data, the labels, and formulas to complete the Excel model (prior to
using the Solver).
(b) (4 marks) Now suppose that calculators can be shipped from Cape Town to Bonn at a cost of $15
per box. For legal reasons, Shanghai cannot transship to Bonn.
EITHER (i) modify the algebraic model given in part (a) OR (ii) Show how to model this extension using Excel. Whether you do (i) or (ii), just describe whats different from before.

A
1
2
3
4 Shanghai
5 Bonn
6 CapeTown
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Canada/USA

LatinAmerica

Europe

WesternAsia

Business 2400, Winter 2014, On-Campus, Student Number

9

Business 2400, Winter 2014, On-Campus, Student Number

10

5. (10 marks) Formulate a model for the following situation:

John and Janet Noseworthy have three children named Becky, Peter, and Alice. They have mentioned the idea of buying some pets, and the children are delighted. Becky would like a cat, a big dog,
and a bird; Peter wants a cat, a little dog, and a big dog; and Alice would like a little dog, a big dog,
and an aquarium of fish. The cost to purchase and look after these animals for a year would be:
Pet
Cost

Cat
$500

Little Dog Big Dog Bird Fish

$650
$900
$200 $300

They will only buy one of any kind of pet. For example, if they buy a cat, Becky and Peter will share
him/her. The parents have promised that each child will get at least two of his/her wishes. They have
a budget of $1800. They wont buy both a little dog and a big dog. They wont buy both a cat and a
bird. They wish to maximize the number of each childs wishes granted.

Business 2400, Winter 2014, On-Campus, Student Number

11

6. (16 marks) A company wanting to build an office tower in downtown Toronto needs to buy
two adjacent properties. Though the existing buildings are derelict, the land is very valuable. The
appraised values for Properties 1 and 2 are $60 million, and $156 million respectively. They can try
to buy these properties (by making separate offers to the two owners) for 50% more than the appraised
value, for which there is a 75% chance that the owner of Property 1 would agree to sell, and an 80%
chance that the owner of Property 2 would agree to sell. If an offer at 1.5 times appraised value is
turned down, they could then offer double the appraised value for that property, for which it is certain
that the owner (of either property) would agree to sell. Ending up with no properties is worth nothing;
ending up with just one property is worth only the appraised value of that one property; ending up
owning both is worth $360 million.
(a) (14 marks) Given that at the outset any offer to buy would be made to both owners simultaneously,
draw a decision tree to determine what the office tower developer should do. (Hint: You might
find it easier to imbed all costs at the end.) There is more space on the next page.
(b) (2 marks) Determine the EVPI by any method.

Business 2400, Winter 2014, On-Campus, Student Number

(continuation from the previous page)

12

Business 2400, Winter 2014, On-Campus, Student Number

13

7. (14 marks) A licence to shoot a moose costs $100 for residents and $800 for non-residents. The
government must decide how many licences to issue in both categories. Demand for resident licences
is unlimited. There is a demand for up to 12,000 non-resident licences; this is a system constraint.
The government has several goal priorities which in descending order of importance are (i) earn at
least $10,000,100 in revenue (ii) issue at least 75% of licences to residents, and (iii) limit the total
number of licences to 35,000.
(a) (7 marks) Formulate this goal programming model.
(b) (7 marks) Solve this model problem graphically, stating the solution at the end of each subproblem. Show the feasible region for the second sub-problem. (You do not need to give the algebraic
models for the sub-problems.) (Graph paper appears on the next page.)

Business 2400, Winter 2014, On-Campus, Student Number

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20,000

10,000

10,000

20,000

30,000

40,000

Business 2400, Winter 2014, On-Campus, Student Number

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8. (7 marks) DO EITHER QUESTION 8 OR QUESTION 9

A mining company wishes to connect three points lying on the same elevation. Places are referenced by a grid system where (a, b) is a point located a metres east and b metres north of a standard
point. The three points are located at (110, 250), (190, 120), and (230, 270). They know that to minimize the construction cost of the tunnels they need to find a point lying in the interior of the triangle
defined by the first three points. This point will be the junction point of the three tunnels. They wish
to know the location of this point, and the total distance of the tunnels.
(a) (4 marks) Formulate this problem.

(b) (3 marks) Give the expressions for the three tunnel lengths and the total tunnel length by
writing in column E:
A
1
2
3
4 Point1
5 Point2
6 Point3
7
8

110
190
230

250 Tunnel1
120 Tunnel2
270 Tunnel3
Total

Business 2400, Winter 2014, On-Campus, Student Number

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9. (7 marks) DO EITHER QUESTION 8 OR QUESTION 9

Consider the following data that illustrates demand, production costs and expected capacity for a
given product.
Jan
Demand (units)
100
Production Cost ($/unit)
20
Production Capacity (units) 150

Feb
125
25
150

Mar Apr
200 175
30
35
150 150

Inventory carrying costs are estimated at $4 per unit per month. The firm wants to produce at
least 50 units per month to uniformly utilize its existing resources. Assume that beginning inventory
is zero. Formulate (but do not solve) a model to determine how many units of the product should be
produced monthly to meet the expected demand at minimal cost.