Introduction to

Quantitative Decision
Making
PROF. AYUSH GUPTA

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Formulating a Linear Program (LP):
Product-Mix Problem
Consider the following linear programming (LP) problem:
Suppose there are two products that need to be manufactured: Speaker and Mic
To manufacture a product, it requires two resources: Budget ($) and Labor (man-hours)
The resources required to manufacture each product, as well as the total available amounts of
each resource, are given in the table below

Speaker Mic Availability

Budget ($) 10 5 60
Labor (Man Hours) 4 6 56

Objective: Maximize the total number of products manufactured

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Formulating a Linear Program (contd.)
The LP model can now be written as:
Maximize 𝑍 =𝑥 +𝑥 Objective function

Subject to:
10𝑥 + 5𝑥 ≤ 60 Budget Constraint
4𝑥 + 6𝑥 ≤ 56 Labor Constraint
𝑥 ,𝑥 ≥ 0 Labor Constraint

The solution to this LP determines the maximum number of speakers and mics that
can be produced when subject to the given budget and labor constraints

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical Method of Solving an LP
This LP can be graphically represented as shown:
𝑥 Chart Title
14

12 (0,12)

10
Budget Constraint
Z=6 (0,9.33)
8
(2,8)

4
Labor constraint

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical Method of Solving an LP
This LP can be graphically represented as shown:
𝑥 Chart Title
14
Z=10
12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33) Optimum Objective value: z* = 10
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical Method of Solving an LP
This LP can be graphically represented as shown:
𝑥 Chart Title
14

(0,12) Corner points/Critical Points

12

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10 Optimal solution: (2, 8)

(0,9.33)
8
(2,8)

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 o𝑟 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8), (6,0)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Can we Increase 𝑐 or 𝑐 without
Changing the Optimal Solution?
𝑥 .
14

12 (0,12)

10
Budget Constraint Optimal solution: (2, 8)
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 What is the Maximum Increase/Decrease
in 𝑐 𝑎𝑛𝑑 𝑐 ? (Cont.)
Slope Method:
Current Z=𝑐 𝑥 + 𝑐 𝑥 =𝑥 + 𝑥 = 10

Slope of budget Constraint: − = −2

Slope of Labor Constraint: − = −

As Evident from the Graph, the equilibrium will not change unless the slope of the objective is
between the slope of the active constraints:−2 ≤ − ≤ − ⇒ 2 ≥ ≥ or ≤ ≤

Currently 𝑐 = 1, 𝑐 = 1

⇒ ≤ 𝑐 ≤ 2 and ≤ 𝑐 ≤

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Speaker and Mic (Version 2)
The goal is to maximize profit by manufacturing two products instead of total sales.

Speaker Mic Availability

Budget (Rs.) 10 5 60
Labor (Man Hours) 4 6 56
Profit/unit 5 2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Formulating a Linear Program
The LP model can now be written as:
Maximize 𝑍 = 5𝑥 + 2𝑥 Objective function
Subject to:
10𝑥 + 5𝑥 ≤ 60 Budget Constraint
4𝑥 + 6𝑥 ≤ 56 Labor Constraint
𝑥 ,𝑥 ≥ 0 Non-Negativity

The solution to this LP determines the maximum profit from speakers and mics
when subject to the given budget and labor constraints

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12 (0,12)

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12
(0,12)

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12
(0,12)

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12
(0,12)

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12
(0,12)

10
Budget Constraint
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Graphical method of solving an LP
This LP can be graphically represented as shown:
𝑥 Speaker and Mic
14

12
(0,12)
Budget Constraint Optimal solution: (6, 0)
10
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

What is the Maximum Increase 𝑐 such
that 𝑥 is not part of Optimal solution?
𝑥 Speaker and Mic
14

12
(0,12)
Budget Constraint Optimal solution: (6, 0)
10
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

INTRODUCTION TO QUANTITATIVE DECISION MAKING

 What is the Maximum Increase in 𝑐 such that
𝑥 is not part of Optimal solution?
𝑥 Speaker and Mic
14

12
(0,12)
Budget Constraint Optimal solution: (6, 0), (2,8)
10
(0,9.33)
8
(2,8)

4
Labor

(6,0) (14,0)
0
0 2 4 6 8 10 12 14 16
𝑥
C1 C2

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

 Maximum Increase in 𝑐
Slope of budget constraint: −2
Slope of objective function:=−

To ensure that solution does not changes:− ≥ −2 ⇒ ≤2⇒ ≥

𝑐 ≥ =
Difference between current 𝑐 and min. required 𝑐 before it can be part of optimal solution:
𝟓 𝟏
2- = − (Reduced Cost)
𝟐 𝟐

What is the Reduced cost of Speaker ?

Prof. Ayush Gupta INTRODUCTION TO QUANTITATIVE DECISION MAKING

Verify Results Through Solver

INTRODUCTION TO QUANTITATIVE DECISION MAKING