Indian School of Business

Decision Models and Optimization

Assignment 1

Section J; Study Group J2:

Student ID Student Name

62111004 Akshat Pawar

62111016 Arishma Datta

62110487 Kanika Gupta

62110749 Navdeep Bajaj

62110813 Prashaant Kalra

 I. LP Modeling
1. The management of OMIPC wants to determine the mix of coals that will maximize the amount
of power (in BTU) produced per hour. This will be its summer-time peak hour operating plan.
Formulate a linear optimization model to find the optimal plan. Write out the analytic model.
Define the decision variables and their units of measurement and label each constraint in terms
of the requirements of the problem. (Hint: For the pulverizer capacity constraint, it may help
first to represent the constraint graphically, and then to deduce the algebraic version.) Build a
spreadsheet model to solve the LP. Report the optimal solution and include a print copy of the
spreadsheet model along with your submission.

Answer:

Decision variables

x1 : Weight of hard coal (in tons/hour)

x2 : Weight of soft coal (in tons/hour)

Objective function

Max (24000 x1 + 20000 x2) BTU/hour

Constraints

SO2 ppm limit: 1800x1/(x1+x2) + 3800x2/(x1+x2) ≤ 3300 =>1800*x1+3800*x2≤3300(x1+x2)

Particulate emission limit: 0.65x1 +1.05x2≤12

Pulverizer capacity: x1*0.0625 + x2* (1/24) ≤1

Conveyor belt capacity: x1 + x2 ≤ 20

Non-negativity: x1, x2 ≥ 0

Optimized Values

Usage of Hard Coal (X1) =14.27 tons/hr

Usage of Soft coal (X2) =2.59 tons/hr

Maximum Power generated (BTU/hour)=394378 BTU/hr

2. OMIPC needs to produce 390,000 BTU per hour in off-peak conditions. If hard coal costs 25%
more than soft coal, what will be the least cost way for OMIPC to meet this requirement?
Reformulate your linear optimization model above to solve this problem. Write out the new
description of the model.

Answer:

Decision variables

x1 : Weight of hard coal (in tons/hour)

x2 : Weight of soft coal (in tons/hour)

Objective function

To minimize total cost function.

Let the cost of soft coal per ton per hour be c

Cost of Hard Coal per ton per hour will be 1.25c

To minimize: (1.25c*x1 + c*x2)

Taking c as constant we can minimize: (1.25x1 + x2)

Constraints

SO2: 1800x1/(x1+x2) + 3800x2/(x1+x2) ≤ 3300 =>1800*x1+3800*x2≤3300(x1+x2)

Particulate: 0.65x1 +1.05x2≤12

 Pulverizer capacity: x1*0.0625 + x2* (1/24) ≤1

Conveyor belt: x1 + x2 ≤ 20

Non-negativity: x1, x2 ≥ 0

BTU/Hour: 24000 x1 + 20000 x2=390000

Optimized Values to minimize cost

Usage of Hard Coal (X1) =13.89 tons/hr

Usage of Soft coal (X2) =2.83 tons/hr

3. Suppose that there was a slight increase in the off-peak load and OMIPC was required to
produce 400,000 BTU per hour in off-peak conditions. How can OMIPC respond to this
requirement? How would you explain your findings to the management and what would be your
recommendation?

Answer:

From the sensitivity analysis, the maximum energy that can be generated without changing the
optimization constraints is 390000 + 4378 = 394,378, which is also the maximum energy that can be
generated given the constraints of Pulverizer capacity and Particulate emission limit.
Thus, it will not be possible to reach the output of 400,000 BTU/hr.

To produce an output of 400,000, we recommend that Management should invest in increasing

Pulverizer capacity for hard coal to 16.67 tons/hour.

In addition, submit a short (1/2 page) non-technical consulting report that highlights your main findings
to the above three questions. The report should be prepared as if to be presented to an audience that
has little knowledge of quantitative models.

Answer:

OMIPC can produce a maximum power of 394,378.38 BTU/hr by using a combination of hard coal (14.27
tons/hr) and Soft Coal (2.59tons/hr) under the given constraints of SO2 emission, Particulate emission,
Pulverizer capacity & Conveyor Belt capacity.

To generate a power of 390,000 for off peak periods and to minimize the cost of coal used, we need to
input 13.89 tons/hr of hard coal and 2.83 tons/hr soft coal for the given constraints. The allowable
increase in power is 4378, thus maximum power that can be generated is 394,378 BTU/hr. At this power
output level, Pulverizer capacity and Particulate Emission are the binding constraints. Also, as per our
analysis, by only increasing the Pulverizer Capacity to 16.67 tons/ hour for hard coal OMIPC can still
output a power of 400,000 BTU/hour by using 16.67 tons/hr of hard coal only.
II. Interpreting the LP sensitivity report

1. Formulate a linear optimization model that can be used to satisfy the daily nutritional
requirements at minimum cost. Use the same variable and constraint names as indicated in the
sensitivity report.
Answer:
Decision Variable:
BR: number of brownies
IC: number of scoops of chocolate ice cream
COLA: Number of bottles of cola
PC: Number of pieces of pineapple cake

Linear Optimization Model:

MIN ( 50BR+20IC + 30COLA + 80PC)

Constraints:
Calorie Constraint - 400BR+200IC+150COLA+500PC >= 500
Chocolate Constraint - 3BR+2IC >= 6
Sugar Constraint - 2BR+2IC+4COLA+4PC >= 10
Fat Constrain - 2BR+4IC+1COLA+5PC >= 8
Non-negative Constrain- BR,IC,COLA,PC>=0

The optimal solution for the above is Chocolate = 3 units and Cola Bottle = 1 units and the
optimal solution is -
50X0+20X3+30X1+80X0 = 90c
2. If a brownie costs 30c, what would be the new optimal solution to the problem? How much will
our costs change?
Answer:
New Optimal Solution Equation: MIN (30BR+20IC+30COLA+80PC)
No change in cost as the allowable decrease is till 22.7 hence the lower range of the variable
would be 22.5 (50-27.5). To change the optimal solution, the cost of brownie should be lesser
 than or equal to 22.5. Since the price mentioned here is 30c which is above the lower range hence
there would be no change

3. If a bottle of cola cost 35c, what would be the new optimal solution to the problem?
Answer:
Th new optimal solution equation: MIN (50BR+20IC+35COLA+80PC)
We can see from the sensitivity report that the allowable increase of the objective coefficient of
Cola is 10. Since 35c is within the range of allowable increase (30-40) we can say that the
optimal solution will not change and would remain i.e. 3 units of chocolate and 1 unit of cola
bottle

4. If a bottle of cola cost 45c, would the new optimal solution be the same or different? Can you
calculate the new optimal solution easily just from looking at the sensitivity reports? Why or why
not?
Answer:
From the sensitivity report, we can say that the new optimal solution would be different since
changing the price to 45 would be higher than the allowable increase limit which is 40 (30+10).
Due to this change, the geometry of the model would change hence the new optimal solution
would change.

5. If at least 8 oz of chocolate were required, what would be the cost of the optimal diet?

Answer:
Current Cost:
20X3+30X1 = 90c
If the constraint would have changed to 8oz minimum chocolate required. The constraint equation
would be -
3BR+2IC>=8
To compute the change in optimal solution we need to check the shadow price of chocolate in
sensitivity analysis. Here we can consider the shadow price to determine the change as the change
is within the allowable increase of 4.
The change in cost = 2.5X2 = 5
The new optimal cost = 90+5 = 95c
6. If at least 600 calories were required, what would be the cost of the optimal diet?
 Answer:
If at least 600 calories were required, the cost would be the same ie. 90c as the final calorie value
of the optimal solution is 750. Hence increasing the limit to change the limit to 600 would not
change the cost also depicted by the shadow price being 0
7. If at least 9 oz of sugar were required, what would be the cost of the optimal diet?
Answer:
Current Cost:
20X3+30X1 = 90c
If 9 oz sugar was required instead of 10, the shadow price would depict the change in cost
expected. The change is also within allowable decrease (4), hence we can successfully interpret
the change in cost from the sensitivity report.
Change in cost would be = = 7.5 X 1 = 7.5
New Cost = 90 – 7.5 = 82.5 cents
8. What would the price of pineapple cheesecake have to be before it would be optimal to eat some
cheesecake?
Answer:
Here we would check the reduced cost column of Adjustable Cells table in the sensitivity
analysis.
From the report, we can see that the Reduced Cost for PC is 50. Thus, the cost should be reduced
by 5. The cost of Pineapple should go below 30c for it to be optimal to eat some cheesecake.

9. What would the cost of the optimal diet be if your friend had to eat at least one brownie?
Answer:
Here we would check the reduced cost column of Adjustable Cells table in the sensitivity
analysis.
If she decides to eat at least one brownie the optimal cost would increase by the reduced cost of
brownie = 27.5
New Cost = 90+27.5 = 117.5
10. If 10 oz of fat were required, would the optimal solution to the problem change? Why or why
not?
Answer:
To check if there would be any change, we would check the shadow price column from
Constraints table.
 The final value of fat is 13. If we increase the fat constraint for 8 to 10 there would be no change
in the optimal solution as the allowable increase is of the constraint is 5 and here, we are
increasing the constraint only by 2. The same is depicted by shadow price being 0 of any change
within the range

11. Suppose your friend could also eat Cadbury chocolate eggs. Each egg costs 45c and contains 250
calories, 5 oz of chocolate, 5 oz of sugar, and 2 oz of fat. Should you add Cadbury eggs to your
friend’s diet? Why or why not? (Since we are in the linear optimization world, fractional
quantities are allowed and one could potentially consume a tiny amount of chocolate eggs)
Answer:
To check the benefits from consuming a chocolate egg can be calculated from the shadow price
which depicts for each increase in consumption of constraints how much would cost increase.
Thus, it gives us the benefits of consuming a Cadbury egg -
Shadow price of Calorie and Fat is 0 hence we calculate benefits from 5 oz of chocolate and 5 oz
of sugar -
7.5 X 5 + 2.5 X 5
= 50c
Since 45c < 50c friend should add Cadbury egg to her diet as it would lead to an overall
decrease in cost as cost is lesser than benefits by 5c

APPENDIX (Excel Screenshots of Solver Solution)

Q1 (a)
Q1 (b)

Q1 c