SAMPLE PROBLEMS ON MARKOV ANALYSIS

1) Warehouzer owns a renwable forest land for growing pine trees. Trees can fall into one of
four categories depending on their age: baby (0 – 5 years), young (5 – 10 years), mature ( 11
– 15 years), and old (more than 15 years). Ten percent of baby and young trees die before
reaching the next age group. For mature and old trees, 50% are harvested and only 5% die.
Becaue of the renewable nature o the operation, all harvested and dead trees are replaced
with new (Baby) trees by the end o the next 5 year cycle.

a) Construct the transition probability matrix.

b) If the forest land can hold a total of 1,000,000 trees, determine the long-run composition
of the forest.
c) If the new tree is planted at a cost of $1.50 per tree and a harvested tree has a market vlue
of $20, determine the average annual income from the forest operation.

2) Jim must make five years worth of progress to complete hid doctorate degree at ABC
University. However, he enjoys the life of a student and is in no hurry to finish his degree.
In any academic year there is a 50% chance he may take the year off and a 50% chance of his
pursuing the degree full time. After completing three academic years, there is a 30% chance
that Jim may “bail out” and simply get a master’s degree, a 20% chance of his taking the next
year off but continuing in the Ph.D. program, and 50% chance of attending school full time
towards his doctorate,

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 a) Construct the transition probability matrix.
b) Determine the number of expected number of academic years before Jim’s student life
comes to an end.
c) Determine the probability that Jim will end his academic journey with only a master’s
degree.
d) If Jim fellowships pays an annual stipend of $15,000 (but only when he attends school),
how much will he be paid before ending up with a degree.

1) There are three categories of income tax filers in the Philippines: those who never evade
taxes, those who sometimes do it, and those who always do it. An examination of audited tax
returns from one year to the next shows that of those who did not evade taxes last year, 95%
continue in the same category this year, and 4% move to the “sometimes” category. For those

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 who sometimes evade taxes, 6% move to “never” and 4% move to “always”. As for the
“always” evaders, the respective percentages are 0%, 10%, and 90%, respectively.

a) Formulate the problems as a Markov chain.

b) In the long run, what would be the percentages of “never”, “sometimes”, and “always” tax
categories?
c) Statistics show that tax payer in the “sometimes” category evades taxes on about P50,000 per
return and in the “always” category on about P120,000. Assuming an average income tax
rate of 15% and a filers population of 70 million, determine the annual reduction in collected
taxes due to tax evasion.

C ) 0.15(50,000 x 0.367646 + 120,000 x 0.19176) x 70,000,000 = PhP 434,631,750,000

2) A computer university administers computer competency examinations every year. These

exams allow students to “test out” of the introductory computer class held at the university.
Results of the exams can be placed in one of the following six states:

State 1 (S1): pass all of the computer exams and be exempt from the course.
State 2 (S2): do not pass all of the computer exams on the fifth attempt and be required to take
the course.
State 3 (S3): fails the computer exams on the first attempt.
State 4 (S4): fails the computer exams on the second attempt
State 5 (S5): fails the computer exams on the third attempt
State 6 (S6): fails the computer exams on the fourth attempt

The course coordinator for the exams has notices the following matrix of transition probabilities:

From/To/ S1 S2 S3 S4 S5 S6
S1 1 0 0 0 0 0
S2 0 1 0 0 0 0

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 S3 0.6 0 0.1 0.1 0 0.2
S4 0.2 0.2 0.2 0.2 0.1 0.1
S5 0.1 0.3 0.1 0.2 0.2 0.1
S6 0.4 0.3 0.1 0.1 0 0.1

Currently, there are 200, 125, 75, and 50 students who did not pass all of the exams on the first,
second, third, and fourth attempt, respectively.

a) In the long-run, how many students will be exempted from the course by passing the exams
b) How many of the 450 students will be required to take the computer course?

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