DECISION MODELING

WITH
MICROSOFT EXCEL
Chapter 4
Linear
Optimization:
Sensitivity Analysis
Copyright 2001
Prentice Hall Publishers and
Ardith E. Baker

Part 1

Sensitivity
Analysis

___________analysis is the effect

a (small) change of an __________
variable has upon another
variable.
In the case of optimization models,
sensitivity analysis refers to the _______of
analyzing such changes in a model after
the optimal solution has been found.
We will use 2-dimensional ____________(i.e.,
only two decision variables) to give
insight into LP sensitivity analysis. In
addition, we will use Solver Sensitivity

Oak Products
Model

Lets return to the Oak Products

model of Chapter 3. In this
simplified model, there are only two
____________variables:
Captains chairs (C )
Mates chairs (M )
Now, review the ____________model
containing the objective function
and _____________.

Symbolic
Model

Max 56C + 40M (objective

function)
Subject to

8C + 4M < 1280 (Long Dowels

Restriction)
4C + 12M < 1600 (Short Dowels
Restriction)
C + M > 100
(Minimum
Production)
4C + 4M < 760
(Legs
Restriction)
C < 140
(Heavy Seats
Restriction)
M < 120
(Light Seats
Restriction)
C > 0 and M > 0 (Nonnegativity
Conditions)

Using GLP

Type labels
for the X,Y
axes, enter
up to 6
constraints
, and the
objective
function
(PAYOFF)
here.

We will use Stanford

Graphic LP Optimizer
(GLP) to analyze the LP
model.

This area is the

graphing pane.

First, obtain a graphical portrayal of the

constraint set.
Start with
For this example, M is
the Long
__________ assigned to the
Dowels
_________axis.

(LDOWELS)
constraint.
Note that the
: separates
the label
from the
This areaconstraint.
represents
the _____________(the set
of all non-negative
points that
__________the Long
Dowels constraint).

Note that you can _______the constraint line

and observe what happens to
the_______________.

Only the ______of the

equation will change
since the _____is
fixed by the ratio of
the two coefficients
in the constraint
equation.

Add the remaining constraints:

Short Dowels

Notice how the

feasible region
changes as we
add constraints.

Add the remaining constraints:

Legs

Add the remaining constraints:

Heavy Seats

Add the remaining constraints:

Light Seats

Add the remaining constraints:

Minimum Product

Finally, add the Objective Function and

rescale.

Feasible
Region
Remember, the Feasible Region
is the region that satisfies
______the constraints.
NOTE:
________additional constraints can
never enlarge the Feasible Region,
Region
but leaves it either ____________or
smaller.
Deleting ___________leaves the
Feasible Region either unchanged
or__________.

Optimal
Solution

A feasible ________(or
feasible
________
decision) is any pair of
values for C and M that
satisfy ____the constraints.

Remember, the values for C and M

represent the _________of each product that
will be produced.
Therefore, the __________________will be a
feasible production alternative (i.e., the
number of Captain and Mate chairs) that
gives the __________ possible value to the
objective function (i.e., maximum profit
contribution).

After entering the objective function, a

_______ line appears in the graph.

This line gives the ____of all values of C and

M that produce ________$2000 profit (as
specified in the dialog), and is thus called
the $2000 _______________.
The slope of this line is__________, but the
axes intercept will change as you change
the _________________from $2000.

In fact, you can view changes in the Profit

by __________________the line in the graph.

It would not
make sense
to drag
beyond the
___________of
the feasible
region.

To find the optimal solution using GLP, click

on the ________
button.

Use the Scissors

button to clean up
superfluous _____________from the

Note that the _______line intersects the

feasible region at one point. This point is
called an _____ optimal solution to our
model.

These two
constraint
s
are_______

The maximum
profit is $9,680,
which is the
same value we
obtained using
Solver.

Now that we know an optimal solution

exists, just what is the
______________________to our model?
The ____________of this point are displayed in
the ____________at the bottom of the
program.
This means that we will make
_______Captains chairs and _____Mates chairs.
This is the ________ solution (or just
solution).
The optimal objective value (or just optimal
value, OV) is calculated using the above
_______ and the objective function:
56(130) + 40(60) = $9,680

Important
Notes
The following notes apply to all
LP solutions:
The optimal solution to any LP model will
____ occur at an interior point of the
feasible region.
Geometrically, a binding constraint is one
that passes through
the_____________________.
Geometrically, a ____________constraint is
one that does not pass through the
optimal solution.

Important
Notes
The following notes apply to all
LP solutions:
Adding _________to a model will either
impair the OV or leave it unchanged.
Deleting constraints will either
__________the OV or leave it unchanged.
Adding ______________will either improve the
OV or leave it unchanged.
Deleting decision variables will either
_____the OV or leave it unchanged.

Extreme
Points
The _______of the feasible region
are called__________________.
The solution
to the model
will occur at
____
of the
extreme
points.

To illustrate this, in GLP, change only the

profit-per-chair _________________for the Mate
chair from $40 to $80 per unit (i.e., change
the objective function to: 56C +
80M=9680).

Then, press on the _______button

the optimal solution using this new
objective function.

to find

As you can see, the _________________remains unchanged. However, there is now a

new___________.
This optimal
point also
lies at an
______
(corner)
Notepoint.
also,
these
___________co
nstraints
are now
binding.
The OV is now 85 Captains and 105 Mates
chairs.

Examine this six-sided ___________set and

contours of 3 different objective functions (f, g,
h).
B
A

Objective Solution
C
f
h
A
g
B & C and
the edge
connectin
C
g these
points

h
g

Note the _______each objective function is

pointing. In each case there is an optimal

Notice objective function g.

This is a case of __________________(or alternative
optima)
optima when the objective contour
__________with one of the constraint lines on the
B
boundary of the feasible
region.
This occurs
g
when the
h
objective
f
A
function
C
contour has
the same
________as the
constraint,
resulting in
________optimal
solutions.
In an LP model, if there is an optimal solution,
there is always _____________optimal corner

Minimization
Model

The ___________method
can also be applied to a
___________(Min) model.

The only difference between Max

and Min LP models is the
optimizing ___________of the
objective function contours.

When maximizing, the

objective function moves
__________,
while minimizing
moves the objective
function ___________.

The goal in Min LP

Minimization
models is to find the
Model
______of the feasible
region that lies on the
__________________
objective function
In a Max model, the
contour that still
objective function
intersects
contours are called
the feasible region.
_______(or profit)
profit lines.
In a Min model,
the objective
function contours
are called
_________(or
cost)
_________
cost

Minimization
Model

Lets look at a simple Min

model in two decision variables
(X1 and X2).
Min X1 + 2X2
s.t.
-3X1 +2X2 < 6
X1 + X2 < 11
-X1 + 3X2 > 6
X1 , X2 > 0

Now use GLP to find the optimal solution.

Enter the ___________________and constraints

into the appropriate edit fields.

To solve, click on the AutoMin button:

The optimal solution lies at the

_____________of the X2 axis and constraint (3).

The
optimal
solution
that
________th
e
objective
function
is:
0 of X1
2 of X2

Unbounded
Models

____________models typically
occur when one or more
important constraints have
been ____________of the
model.
In this case, it results in an ________number
of allowable values for the decision
variables that will ___________the objective
value.
To illustrate this, remove the first four
constraints from the Oak Products model
and try to solve it using GLP.

unbounded area

After clicking AutoMax, GLP displays a

message that the model is unbounded.

Infeasible
Models

___________ (or inconsistency)

inconsistency
refers to a model with an
_____ feasible region.

This means that there is no ____________

of values for the decision variables
that simultaneously satisfies ___the
constraints.
To illustrate
this, consider the following LP
model:
Max 50E +
40F
s.t.
E+F<
5
E - 3F < 0

10E + 15F <

150
20E + 10F <
160
30E + 10F >
135
E+F>0

In GLP, enter the constraints and objective

function. Next, click AutoMax to solve.

After clicking AutoMax, GLP displays a

message that the model is infeasible.

Note the ______________(i.e., < or > that each

constraint is pointing. As you can see,
there is no _____region that satisfies all the
constraints.

Infeasibility depends solely on the

___________ and has nothing to do with

Important
Notes
Every linear program will fall into one
of the following three
__________________ categories:
1. The model has an________________.
2. There is ___optimal solution,
because
the model is______________.
3. There is no optimal solution,
because
the model is_______________.

Sensitivity
Analysis

How ___________is the

optimal solution to any
____________data?

The answer to this question will

help determine the ________of the
models recommendations.
For example, if the OV changes very little
with large changes in the value of a
particular parameter, you would not be
concerned about _______________in that value.
However, if the OV varies wildly with small
changes in that parameter, you cannot
________ uncertainty in its value.

Sensitivity
In mathematical terms,
Analysis sensitivity analysis (____________
analysis)
analysis is the concept of the partial
__________, where all variables are held
constant except for one. This is also
known in economics as________________.

Sensitivity analysis is based on the

proposition that all _____________values
except for one number in the model are
held__________.
The __________approach is ideal for
determining how changes in two-decisionvariable models affects the solution.

Changes in the
Objective
Function Coefficients
Suppose that the ____________data
remain unchanged and only the
__________coefficients are changed.

Sensitivity
Analysis

The only effect on the model, is that the

slope of the _____________line will change.
By changing the __________of the Oak
Products models objective function, you
can see that some of those changes will not
necessarily change the _____________, even
though the isoprofit lines will have a
different___________.

For example, change the objective function

from
56C + 40M to 56C + 48M

Only the slope of the ____________line

changes. However, the optimal values of
C =130 and M = 60 do not change because
the same ______________solution reappears.

Alternative
Optimal
Solution

__________optimal solutions
occur when the _________of
the objective function is
___________to a constraint.

In the case of a two decision variable

model, when the contour of the
objective function is parallel to a
constraint, there are ___optimal corner
solutions, and in fact, all the points on
the constraint between the two corners
are also
optimal
If there
is more
thansolutions.
one solution to an LP
(i.e., there exist alternative optimal
solutions) then there are an
____________number of alternative optimal

To observe the connections among the Payoff

slope, corner points, and any movement of the
optimal solution from one corner point to
another, right-click on the Payoff line in GLP
For example,
and drag it.
observe the
change in the
objective
function
coordinates
and OV as the
line is
dragged
down.

Use Solvers ______________feature to observe

what will happen when the isoprofit line
changes.

Return to the Simplified Oak Products

model in the Excel spreadsheet.

After running Solver, the Solver Results

dialog will open in which you can select the
Sensitivity Report.

This results in the following worksheet:

The solution gives 40 as the Objective

Coefficient for Mates chairs.
Holding all other data in the model constant,
the Mate Objective Coefficient can _________by
up to 16 additional dollars of unit profit and
still not change the original LP corner point

In general, the Allowable Increase and

Allowable Decrease entries indicate how much
a given decision variables Objective Coefficient
may change, holding all the other data in the
model constant, and still have the same LP
solution.

When a ___________is changed by less than

the allowable amounts, the current optimal
solution remains the _________optimal
solution.
For a Max model, when a coefficient is
________ by its allowable amount exactly,
there will be an alternative optimal corner
solution with a larger optimal value for the
distinguished variable.
For a MIN model, __________a coefficient by
the allowable amount exactly will produce
an alternative optimum corner with a lower
optimal value for the distinguished
variable.
When a variables coefficient is decreased
by its allowable amount, there will be
another ____________________corner solution
with the distinguished variable having a
lower (MAX model) or higher (MIN model)

X3

A value of 0 in the Allowable

Increase/Decrease sections of the
Sensitivity Report indicates that there is
____________alternative optimal corner point
solution
the
model. example:
Considerto
the
following
The objective function
contour is parallel to
I
the _________constraint.
1

II

Corners I and II are

____________optimal.

Solver will find only

3
____ of these two
X
corners as an optimal
The Sensitivity Report
solution and the
would report a 0 value in Sensitivity Report will
the _____________column.
apply only to that
1

In a Max model, increasing the ____________of

an activity associated with a decision and
keeping all other data _______________cannot
reduce the optimal level of that activity.
For a Min model, increasing the cost of an
activity __________with a decision and
keeping all other data unchanged cannot
___________the optimal level of that activity.

Sensitivity
Analysis

Changes in Constraint
Right-Hand Sides

Ignoring the________________, lets

observe the effects of right-handside changes for
___________constraints.
You can use _____graphical analysis to
explain the effects of changes in
these_____________.
You can see the effects of changing the
right-hand-side of the inequality by
changing that number directly, by dragging
the constraint line or by clicking on the
buttons next to each constraint in GLP.

Note that:

______________an inequality constraint means

making it more ___________to satisfy.
For a > constraint, this means _________the RHS.
For a < constraint, this means decreasing the
RHS.
Tightening either ____________the feasible
region or leaves it____________.
_____________an inequality constraint means
making
it ___________to
For a > constraint,
this satisfy.
means _________the RHS.
For a < constraint, this means _________the RHS.

Loosening either ________the feasible region

or leaves it_____________.

Sensitivity
Analysis

RHS Sensitivity and the

Shadow Price

For the Oak Products Model, first

hold all numbers _________except
for the inventory of Long Dowels.
Let us change the __________from L=1280
to L=1281, L=1320, and L=1350.
Since this constraint is the < form,
increasing the RHS results in _________
the constraint, making it easier to satisfy.
The __________interpretation is that the
feasible region is_______________.

L=1281

Note that the constraints on Legs and Long

Dowels continue to be ___________.
The optimal solution is C=130.25 and M=59.75
For a
maximu
m profit
of $9684
(an
increase
of $4,
the
________pr
ice).
ice

Note that:
The ____________of a given constraint is
the change per unit increase in RHS with
all other data held_________.
It is called a shadow price because its
______ is masked or shadowed until the
model is ___________and sensitivity
analysis is done by Solver. In economic
theory, the shadow price is sometimes
called a_______________.

When L = 1280, the shadow price of 4 is

valid for an __________increase (in L) of 40
Long Dowels and an allowable _________of
180 Long Dowels.
For L values between 1000 and 1320 Long
Dowels, the change in the ____for each unit
of RHS__________ increase, with all other data
held fixed, is $4/Long Dowel.

L=1320

Now __________constraints are binding.

The optimal solution is C=140 and M=50
For a
maximu
m profit
of $9840.

Here is the corresponding Solver Solution:

Again, note 3 binding constraints and only 2

positive decision variables.
When an LP solution has more binding
constraints than positive variables, it is called

Here is the corresponding Sensitivity

Report:

Degeneracy can lead to some ____________when

interpreting this report. Note the allowable
increase/decrease for some shadow prices = 0.

When L = 1320, the shadow price remains

at 4, but the allowable increase is 0, which
means that the value 4 does not apply to
RHS values any larger than 1320.
Indeed, the ________________shows that the
constraint becomes non-binding and
__________ when L > 1320.
Small changes in the RHS of a non-binding
constraint _______affect the OV, and hence
for a non-binding constraint the shadow
price will always be_________.

Note that:
The interpretation of the shadow price is
____ only within a range for the given
RHS. This range is specified by the
Allowable Increase and Allowable
Decrease columns in the
___________section of the Sensitivity
Report.

L=1350

The binding constraints are now Legs and

Heavy Seats.
The optimal solution is C=140 and M=50
For a
maximu
m profit
of
$9840.

Here is the corresponding Solver Solution:

The Long Dowels constraint is now nonbinding.

The shadow price is now $0.

When L = 1350, we see that now, with the

relevant constraint non-binding, the shadow
price is indeed zero and the allowable increase
is_____________. That is, for any further increase
in L, the constraint will remain ____________and
the shadow price will remain at the value 0.

Note that:
The shadow price of a non-binding
constraint will always be________. A nonbinding constraint means that the
constraint has ______ or surplus.
The RHS sensitivity information that the
Sensitivity Report provides does not tell
us how the optimal decisions for C and M
change. It merely explains the way in
which the ______ will change as the RHS
changes.

Shortcomings of Solvers Sensitivity Report

1. The report gives sensitivity
information for
______________of parameters only in the
immediate neighborhood of the
solution,
and only for changing one __________at
2. The report gives _________only for
a
effects
time.
upon the OV.
3. The report gives no sensitivity
information
for _________in the models technical
coefficients.

End of Part 1
Please continue to Part 2