MGTC 74: Analysis for Decision Making

Final Exam Summer 07 August 21 - 7 9 pm HW 216

Coverage: All course materials
Name: ____________________________

Student Number: __________________

Instructions:
1. Please answer all questions in the place indicated in this booklet. Make sure
your name is on this booklet (as above). Use examination books for rough work;
answers in exam books will not be read. In all cases provide the BEST answer.
2. Each of the five questions is worth 20 marks.
3. Time allowed is 2 hours (120 minutes).
4. Turn off all cell phones and radio frequency devices.
5. You will be handed an Examination Candidate Form with this exam to complete
and will be collected during the exam.
6. Do not separate any of the pages in this booklet. Exams with loose pages or
staples that have been tampered with will not be marked. If your exam becomes
separated ask for a new booklet from an invigilator.
7. Indicate answers in the space provided with each question. Some or no rough work
as space allows may be included at the discretion of the student the makers will be
assessing in the first instance the explicit answer to the question asked only
8. Some useful formulae have been included.
1.
You are considering buying your own business and are trying to assess the
viability of Pedros Lunch Bar which is for sale. This business is a restaurant that caters
exclusively to the business lunch crowd on Baldwin Street. They are open five days a
week for two hours and have seating for 50 customers. They assume that they can have
two sittings per place per day (that is, 50X5X2 meals served maximum per week). You
audit their receipts and invoices and estimate fixed costs at 2800$ per week. The
average meal is sold for 10$ and uses around 3$ in consumable materials (variable
cost).
(a) What is the break even number of customers per day? 10-3=7;_2800/7=400/5= 80 or
80% capacity
(b) How many customers per day are needed to pay the fixed costs? (but not the
variable costs)?
_2800/(10x5)= 56 __

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(c) You spend one two hour period at the restaurant and count the number of customers.
From an operations point of view what would you recommend for the current owners if
you notice the following numbers of customers?
(i) 90 : business profitable, increase volume of business
(ii) 70 : meeting fixed costs but not variable reduce costs or increase volume
(iii) 50 : not meeting fixed or variable costs: consider selling (liquidating) or do not buy
business
2.
The communities in northern Canada are separated by long distances. SnowWalker Express involves the delivery of documents, medical supplies and parcels
between locations within one week guaranteed. The following network shows the routes
between seven pickup and delivery locations. The numbers above each arc indicate the
travel time in hours between the two locations. Develop a linear program model of a
transshipment problem that can be used to find the minimum travel time required to
make a delivery (that is, one delivery) from location 1 to location 7. What is (are):

(a) The objective function?

Min 35X12+30X13+12X23+18X24+39X27+15X35+12X45+16X47+9X56+18X67
(b) The constraints?
1. X12+X13=1
2. X12+X27+X24+X23=0
3. X13-X23+X35=0
4. X24+X47+X45=0
5. X35-X45+X56=0
6. X56+X67=0

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7. X27+X47+X67=1
8. XIJ>=0
3. (a) Henderson Furniture sells reproductions of 18th century furniture. For a particular
table, the assumptions of the inventory model with backorders are valid.
D = 200 tables per year
I = 25% per year
C = $800 per table
Co = $80 per order
Cb = $50 per table per year
The store is open 250 days a year.
(i)

What are the values for order quantity and number of planned backorders
that will minimize total cost?
Q*=(2(200)(80)/200*(250/50))1/2= 28.28=28
S*=(28.28(200/(200+50))= 22.62 = 23

(ii)

What is the maximum inventory?

Order qty-amt of planned backorders [11.18]= 28-23= 5

(iii)

What is the cycle time?

[11.19] cycle time is 28.28 table/order / 200/250 tables/days = 35 days
per order
(35.35)

(iv)

What is the total cost?

[11.25] 25/(2x28) x 200 + (200/28) x80 +(529/56)x50= 89.3+571.4+472.3= $1133 /yr

(b) The 4 students in a seminar class must come to the professor's office to turn in a
paper and give a 5-minute oral summary. Assume there is a service rate of 10 per
hour and adequate time is available for all. The mean arrival rate for each unit is 5
per hour. What is the probability there is no one in the office or waiting when you
come?
0.0952 or about 10% or 1 chance in 10
4.
A developer has the opportunity to purchase land currently zoned residential. If
the Metro council approves a request to re-zone the property as commercial within the
next year the developer will be able to lease the land to a large discount retailer that will
open a new store on the property. However, if the zoning change is not approved, the
developer will have to sell the property at a loss. Profits (in thousands of dollars) are
shown in the following payoff table.
State of Nature

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Rezoning Approved
s1
Decision Alternative
Purchase, d1
Do not purchase, d2

Rezoning Not Approved

s2

600
0

-200
0

a) If the probability that the zoning will be approved is 0.5, what decision is
recommended?

____d1 (purchase) the property

What is the expected profit? = .5(600)+.5(-200) = $200,000.

b) The developer can purchase an option to buy the land. Under the option, the investor
maintains the right to purchase the land anytime during the next three months while
learning more about possible resistance to the rezoning proposal from the area
residents. Probabilities are as follows:
Let H= High resistance to re-zoning
P(H) = 0.55
P(L) = 0.45

and L= Low resistance to re-zoning

P(s1|H)= 0.18
P(s1|L)= 0.89

P(s2|H)=0.82
P(s2|L)=0.11

What are the best strategies (and why).

If there is high resistance? __Max of -56 and 0 so 0 which is d2 do not purchase
If there is low resistance? Max of 512 and 0 so 512 which is d1 purchase
The expected value if purchasing the option? =.55x0 + .45x512 = $230,400
c) If the option should cost the developer an additional $10,000, should the developer
purchase the option? Why or why not from a decision analysis point of view?
EVSI=230,400 200,000 = $30,400. As option costs $10,000 it should be
purchased as it improves the value by 30,400$
What is the maximum that the developer should be willing to pay for the option?
Up to $30,400.
5.
The UTSC Art Gallery is considering installing a video camera security system to
reduce its insurance premiums. A diagram of the eight display rooms that UTSC uses for
exhibitions is shown following; the openings between the rooms are numbered 1 to 13. A
security firm proposed that two-way cameras be installed at some room openings. Each
camera has the ability to monitor the two rooms between which each camera is located.
For example, if a camera were located at opening number 4, rooms 1 and 4 would be
covered; if a camera were located at opening 11, rooms 7 and 8 would be covered and
so on. Management decided not to locate a camera system at the entrance to the
display rooms. The objective is to provide security coverage for all eight rooms using the
minimum number of two way cameras.

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Formulate a 0-1 Integer linear programming model that will enable UTSC Administration
to determine the locations for the camera system. Answer:
(a) What are the decision variables?
xi = 1 if a camera is located at opening 1, 0 if not (binary); i = 1, 2.13.
(b) What is the objective function?
Min x1+ x2+ ..+x13
(c) What are the constraints?
Room 1
Room 2
Room 3
Room 4
Room 5
Room 6
Room 7
Room 8

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x1+x4+x6 1
x6+x8+x12 1
x1+x2+x3 1
x3+x4+x5+x7 1
x7+x8+x9+x10 1
x10+x12+x13 1
x2+x5+x9+x11 1
x11+x13 1

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Okay to use = instead of

Xi = binary

Some useful formula.

Linear Programming and Networks:

Decision Making:

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Inventory Model with planned shortages:

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Queue Models:

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