Assignment-II-part I

1.The L. Young & Sons Manufacturing Company produces two products, which have the
following profit and resource requirement characteristics.

Characteristic Product Product 2

1
Profit/unit $4 $2
Dept. A hours/unit 1 1
Dept. B hours/unit 2 5

Last month’s production schedule used 350 hours of labor in department A and 1000 hours
of labor in department B.
Young’s management has been experiencing workforce morale and labor union problems
during the past six months because of monthly departmental workload fluctuations. New
hiring, layoffs, and interdepartmental transfers have been common because the firm has
not attempted to stabilize workload requirements.
Management would like to develop a production schedule for the coming month that will
achieve the following goals in the order of importance given.
Goal 1: Use 350 hours of labor in department A.
Goal 2: Use 1000 hours of labor in department B.
Goal 3: Earn a profit of at least $1300.
Formulate a suitable mathematical model and give the optimum solution using solver.

2.Blue Ridge Power and Light is an electric utility company with a large fleet of vehicles,
including automobiles, light trucks, and construction equipment. The company is evaluating
four alternative strategies for maintaining its vehicles at the lowest cost: (1) do no
preventive maintenance at all and repair vehicle components when they fail; (2) take oil
samples at regular intervals and perform whatever preventive maintenance is indicated by
the oil analysis; (3) change the vehicle, oil on a regular basis and perform repairs when
needed; (4) change the oil at regular intervals, take oil samples regularly, and perform
maintenance repairs as indicated by the sample analysis.

For autos and light trucks, strategy 1 (no preventive maintenance) costs nothing to
implement and results in two possible outcomes: There is a .10 probability that a defective
component will occur, requiring emergency maintenance at a cost of $1,200, or there is
a .90 probability that no defects will occur and no maintenance will be necessary.

Strategy 2 (take oil samples) costs $20 to implement (i.e., take a sample), and there is a .10
prob ability that there will be a defective part and .90 probability that there will not be a
defect. If there is actually a defective part, there is a .70 probability that the sample will
correctly identify it, resulting in preventive maintenance at a cost of $500. However, there
is a .30 probability that the sample will not identify the defect and indicate that everything
is okay, resulting in emergency maintenance later at a cost of $1,200. On the other hand, if
there are actually no defects, there is a .20 probability that the sample will erroneously
indicate that there is a defect, resulting in unnecessary maintenance at a cost of $250.
There is an .80 probability that the sample will correctly indicate that there are no defects,
resulting in no maintenance and no costs.

Strategy 3 (changing the oil regularly) costs $14.80 to implement and has two outcomes:
a.04 probability of a defective component, which will require emergency maintenance at a
cost of $1,200, and a .96 probability that no defects will occur, resulting in no maintenance
and no cost.

Strategy 4 (changing the Oil and sampling) costs $34.80 to implement and results in the
same probabilities of defects and no defects as strategy 3. If there is a defective
component, there is a .70 probability that the sample will detect it and $500 in preventive
maintenance costs will be incurred. Alternatively, there is a .30 probability that the sample
will not detect the defect, resulting in emergency maintenance at a cost of $1,200. If there
is no defect, there is a .20 probability that the sample will indicate that there is a defect,
resulting in an unnecessary maintenance cost of $250, and there is an .80 probability that
the sample will correctly indicate no defects, resulting in no cost.

Develop a decision strategy for Blue Ridge Power and Light and indicate the expected value
of this strategy.

3.Kroft Food Products is attempting to decide whether it should introduce a new line of
salad dressings called Special Choices. The company can test market the salad dressings in
selected geographic areas or bypass the test market and introduce the product nationally.
The cost of the test market is $150,000. If the company conducts the test market, it must
wait to see the results before deciding whether to introduce the salad dressings nationally.
The probability of a positive test market result is estimated to be 0.6. Alternatively, the
company can decide not to conduct the test market and go ahead and make the decision to
introduce the dressings or not. If the salad dressings are introduced nationally and are a
success, the company estimate that it will realize an annual profit of $1.6 million, whereas if
the dressings fail, it will incur a loss of $700,000. The company believes the probability of
success for the salad dressings is 0.50 if they are introduced without the test market. If the
company does conduct the test market and it is positive, then the probability of successfully
introducing the salad dressings increases to 0.8. If the test market is negative and the
company introduces the salad dressings anyway, the probability of success drops to 0.30.
Using decision tree analysis, determine whether the company should conduct the test
market. Determine the expected value of sample information (EVSI) and the expected value
of sample information. What is the maximum amount that could be paid for market
research information?
Last date: 29-03-2022 by 5:30 PM. Submit your assignment in neatly written handwriting.