Operations Research

Course Description:
Operations Research is a very important area of study, which tracks its roots to business
applications. It combines the three broad disciplines of Mathematics, Computer Science, and
Business Applications. This course will formally develop the ideas of developing, analyzing, and
validating mathematical models for decision problems, and their systematic solution. The course
will involve programming and mathematical analysis.

Course Objectives:
Upon completion of this course, the students will be able to:
- Solve business problems and apply it's applications by using computer programming and
mathematical analysis.
- Develop the ideas of developing, analyzing, and validating mathematical models for decision
problems, and their systematic solution.
- Understand the main concepts of OR.

Unit-I
Introduction
The term operations research was first coined in 1940 by McClosky and Trefthen in a small town
Bowdsey, of the United Kingdom. This new science came into existence in a military context.
During World War II, military management called on scientists from various disciplines and
organized them into teams to assist in solving strategic and tactical problems, relating to air and
land defense of the country. Their mission was to formulate specific proposals and plans for
aiding the Military commands to arrive at decisions on optimal utilization of scarce military
resources and efforts and also to implement the decisions effectively. This new approach to the
systematic and scientific study of the operations of the system was called Operations Research or
operational research. Hence OR can be associated with "an art of winning the war without
actually fighting it."

Scope of Operations Research

There is a great scope for economists, statisticians, administrators and the technicians working as
a team to solve problems of defence by using the OR approach. Besides this, OR is useful in the
various other important fields like:
1. Agriculture.
2. Finance.
3. Industry.
4. Marketing.
5. Personnel Management.
6. Production Management.
7. Research and Development.
Phases of Operational Research
The procedure to be followed in the study of OR, generally involves the following major phases.
1. Formulating the problem.
2. Constructing a mathematical model.
3. Deriving the solution from the model.
4. Testing the model and its solution (updating the model).
5. Controlling the solution.
6. Implementation.

Models in Operations Research

A model in OR is a simplified representation of an operation, or is a process in which only the

basic aspects or the most important features of a typical problem under investigation are
considered. The objective of a model is to identify significant factors and interrelationships. The
reliability of the solution obtained from a model, depends on the validity of the model
representing the real system. A good model must possess the following characteristics:
(i) It should be capable of taking into account, new formulation without having any changes in
its frame.
(ii) Assumptions made in the model should be as small as possible.
(iii) Variables used in the model must be less in number ensuring that it is simple and coherent.
(iv) It should be open to parametric type of treatment.
(v) It should not take much time in its construction for any problem.

Advantages of a Model
There are certain significant advantages gained when using a model these are:
(i) Problems under consideration become controllable through a model.
(ii) It provides a logical and systematic approach to the problem.
(iii) It provides the limitations and scope of an activity.
(iv) It helps in finding useful tools that eliminate duplication of methods applied to solve
problems.
(v) It helps in finding solutions for research and improvements in a system.
(vi) It provides an economic description and explanation of either the operation, or the systems
they represent.

Models by Structure
Mathematical models are most abstract in nature. They employ a set of mathematical symbols to
represent the components of the real system. These variables are related together by means of
mathematical equations to describe the behavior of the system. The solution of the problem is
then obtained by applying well-developed mathematical techniques to the model.

BASIC OR CONCEPTS
"OR is the representation of real-world systems by mathematical models together with the use of
quantitative methods (algorithms) for solving such models, with a view to optimizing."
We can also define a mathematical model as consisting of:
  Decision variables, which are the unknowns to be determined by the solution to the
model.
 Constraints to represent the physical limitations of the system
 An objective function
 An optimal solution to the model is the identification of a set of variable values which are
feasible (satisfy all the constraints) and which lead to the optimal value of the objective
function.

An optimization model seeks to find values of the decision variables that optimize (maximize or
minimize) an objective function among the set of all values for the decision variables that satisfy
the given constraints.
TERMINOLOGY
Solution: The set of values of decision variables (j = 1, 2, ... n) which satisfy the constraints
is said to constitute solution to meet problem.
Feasible Solution: The set of values of decision variables Xj (j = 1, 2, ... n) which satisfy all
the constraints and non-negativity conditions of an linear programming problem simultaneously
is said to constitute the feasible solution to that problem.
Infeasible Solution: The set of values of decision variables Xj (j = 1, 2, ... n) which do not
satisfy all the constraints and non-negativity conditions of the problem is said to constitute the
infeasible solution to that linear programming problem.
Basic Solution: For a set of m simultaneous equations in n variables (n > m), a solution obtained
by setting (n – m) variables equal to zero and solving for remaining m variables is called a ―basic
feasible solution‖.
The variables which are set to zero are known as non-basic variables and the remaining m
variables which appear in this solution are known as basic variables:
Basic Feasible Solution: A feasible solution to LP problem which is also the basic solution is
called the ―basic feasible solution‖. Basic feasible solutions are of two types;
(a) Degenerate: A basic feasible solution is called degenerate if value of at least one basic
variable is zero.
(b) Non-degenerate: A basic feasible solution is called ‗non-degenerate‘ if all values of m basic
variables are non-zero and positive.
Optimum Basic Feasible Solution: A basic feasible solution which optimizes (maximizes or
minimizes) the objective function value of the given LP problem is called an ‗optimum basic
feasible
solution‘.
Unbounded Solution: A basic feasible solution which optimizes the objective function of the
LP problem indefinitely is called ‗unbounded solution‘.
Introduction of Linear Programming

Linear programming deals with the optimization (maximization or minimization) of a function

of variables known as objective functions. It is subject to a set of linear equalities and /or
inequalities known as constraints. Linear programming is a mathematical technique, which
involves the allocation of limited resources in an optimal manner, on the basis of a given
criterion of optimality.
 In this section properties of Linear Programming Problems (LPP) are discussed. The graphical
method of solving a LPP is applicable where two variables are involved. The most widely used
method for solving LP problems consisting of any number of variables is called Simplex method

Formulation of LP Problems

The procedure for mathematical formulation of a LPP consists of the following steps:
Step 1 To write down the decision variables of the problem.
Step 2 To formulate the objective function to be optimized (Maximized or Minimized) as a linear
function of the decision variables.
Step 3 To formulate the other conditions of the problem such as resource limitation, market
constraints, interrelations between variables etc., as linear in equations or equations in terms of
the decision variables.
Step 4 To add the non-negativity constraint from the considerations so that the negative values of
the decision variables do not have any valid physical interpretation.
The objective function, the set of constraint and the non-negative constraint together form a
Linear programming problem.

General Formulation of LPP

The general formulation of the LPP can, be stated as follows:

In order to find the values of n decision variables x1 , x2 , x3 ,....., xn to maximize or minimize
the objective function.
Z = c1x1 + c2 x 2 + ..... + cn x n (1)
and also satisfy m-constraints
a11 x1+a12x2+….a1nxn ≤=≥b1
a21 x1+a22x2+….a2nxn ≤=≥b2
…….
am1 x1+am2x2+….amnxn ≤=≥bm

where constraints may be in the form of inequality < or > or even in the form an equation (=) and
finally satisfy the nonnegative restrictions
x1 ≥, x 2 ≥, x3 ≥,.....xn ≥ 0.

Ex: A manufacturer produces two types of models M1 and M2. Each model of the type M1
requires 4 hrs of grinding and 2 hours of polishing; whereas each model of the type M2 requires
2 hours of grinding and 5 hours of polishing. The manufacturers have 2 grinders and 3 polishers.
Each grinder works 40 hours a week and each polisher works for 60 hours a week. Profit on M1
model is Rs.3.00 and on model M2, is Rs.4.00. Whatever is produced in a week is sold in the
market. How should the manufacturer allocate his production capacity to the two types of
models, so that he may make the maximum profit in a week?

Solution:

Decision Variables: Let x1 and x2 be the number of units of M1 and M2 model.

Objective function: Since the profit on both the models are given, we have to maximize the
profit
Max (Z) = 3x1 + 4 x2
Constraints: There are two constraints one for grinding and the other for polishing.
No.of hrs. Available on each grinder for one week is 40 hrs.
There are 2 grinders.
Hence the manufacturer does not have more than 2 * 40 = 80 hrs of grinding. M1 requires 4 firs
of grinding and M 2, requires 2 hours of grinding.
The grinding constraint is given by
4x1+ 2x2 ≤80
Since there are 3 polishers, the available time for polishing in a week is given by 3 x 60= 180.
M1 requires 2 hrs of polishing and M2, requires 5 hrs of polishing.
Hence, we have 2x1 + 5x 2≤180
Finally we have
Max (Z) = 3x1 + 4 x2
Subject to 4x1 + 2x2 ≤ 80
2x1+ 5x2 ≤180

GRAPHICAL METHOD:

If there are two variables in an LP problem, it can be solved by graphical method. Let the
two variables be x1 and x2. The variable x1 is represented on x-axis and x2 on y-axis. Due to non-
negativity condition, the variables x1 and x2 can assume positive values and hence the if at all
solution exists for the problem, it lies in the first quadrant. The steps used in graphical method
are summarized as follows:
Step 1: Replace the inequality sign in each constraint by an equal to sign.
Step 2: Represent the first constraint equation by a straight line on the graph. Any point on this
line satisfies the first constraint equation. If the constraint inequality is ‗_‘ type, then the area
(region) below this line satisfies this constraint. If the constraint inequality is of ‗_‘ type, then the
area (region) above the line satisfies this constraint.
Step 3: Repeat step 2 for all given constraints.
Step 4: Shade the common portion of the graph that satisfies all the constraints simultaneously
drawn so far. This shaded area is called the ‗feasible region‘ (or solution space) of the given LP
problem. Any point inside this region is called feasible solution and provides values of x1 and x2
that satisfy all constraints.
Step 5: Find the optimal solution for the given LP problem. The optimal solution may be
determined using the following methods.

Extreme Point Method: In this method, the coordinates of each extreme point are substituted
in the objective function equation, whichever solution has optimum value of Z (maximum or
minimum) is the optimal solution.

Iso-Profit (Cost) Function Line Method: In this method the objective function is represented
by a straight line for arbitrary value of Z. Generally the objective function line is represented by a
dotted line to distinguish it from constraint lines. If the objective is to maximize the value of Z,
then move the objective function line parallel till it touches the farthest extreme point. This
farthest extreme point gives the optimum solution. If objective is to minimize the value of Z, then
move the objective function line parallel until it touches the nearest extreme point. This nearest
extreme point gives the optimal solution.

Ex: Solve the following LPP using graphical method.

Maximize Z = 3 x1 + 4 x2
Subject to x1 + x2 ≤ 450
2 x1 + x2 ≤ 600
x1, x2 ≥ 0

Solution:
Represent x1, on x-axis and x2 on y-axis. Represent the constraints on x and y axis to an
appropriate scale as follows:

Replace the inequality sign of the first constraint by an equality sign, the first constraint
becomes
x1 + x2 = 450
This can be represented by a straight line x
If x1 = 0, then x2 = 450
If x2 = 0, then x1 = 450
The straight line of the first constraint equation passes through coordinates (0, 450) and
(450, 0) as shown in Fig.

Any point lying on this line satisfies the constraint equation. Since the constraint is inequality
of ‗_‘ type, to satisfy this constraint inequality the solution must lie towards left of the line.
Hence mark arrows at the ends of this line to indicate to which side the solution lies.
Replace the inequality sign of the second constraint by an equality sign, then the constraint
equation is
2 x1 + x2 = 600
This constraint equation can be represented by straight line
If x1 = 0 then x2 = 600
If x2 = 0 then x1 = 300
The line passes through co-ordinates (0, 600) and (300,0) as shown in Fig. Any point lying on
this straight line satisfies the constraint equation. Since the constraint is inequality of ‗_‘ type,
the solution should lie towards left of the line to satisfy this constraint inequality. The shaded
area shown in figure satisfies both the constraints as well as non-negative condition. This shaded
area is called the ‗solution space or the region of feasible solutions‘.
To Find Optimal Solution
Extreme Point’s Method: Name the corners or extreme points of the solution space. The
solution space is OABCO. Find the coordinates of each extreme point, substitute them in
objective function equation and find the value of Z as below:

Extreme point ‗C‘ gives the maximum value of Z. Hence, the solution is x1 = 0, x2 = 450 and
maximum Z = 1800.

Unbounded Solution:

Some of the LP problem may not have a finite solution. The values of one or more decision
variables
and the value of the objective function are permitted to increase infinitely without violating the
feasibility
condition, then the solution is said to be unbounded. It is to be noted that the solution may be
unbounded
for maximization type of objective function. This is because in minimization type of objective
function,
the lower boundary is formed by non-negative condition for decision variables.

Ex: Solve the following LPP using graphical method.

Max Z = 3 x1 + 2 x2
Subject to
x1 – x2 ≥1
x1 + x2 ≥ 3
4.5x1 + 3 x2 ≥ 3
x1, x2 ≥ 0

Solution: x1 – x2 = 1
If x1 = 0, x2 = –1
If x2 = 0, x1 = 1
x1 – x2 = 1 passes through (0, –1) (1, 0)
x1 + x2 = 3
If x1 = 0, x2 = 3
If x2 = 0, x1 = 3
x1 + x2 = 3 passes through (0, 3) (3, 0)
4.5x1 + 3 x2≥ 3
If x1 = 0, x2 = 3
If x2 = 0, x2 = 2
4.5x1 + 3 x2 ≥ 3 passes through (0, 3) (2, 0)
The solution space is in Fig.
Assume Z = 6 then 6 = 3 x1 + 2 x2 passes through (0, 3) (2, 0).
Move the objective function line till it touches the farthest extreme point of solution space. Since
there is no closing boundary for the solution space, the dotted line can be moved to infinity. That
is Z will be maximum at infinite values of x1 and x2. Hence the solution is unbounded.
Note: In an unbounded solution, it is not necessary that all the variables can be made arbitrarily
large as Z approaches infinity. In the above problem if the second constraint is replaced by x1≤ 2,
then, only x1 can approach infinity and x1 cannot be more than two.

Infeasible Solution:

Infeasibility is a condition when constraints are inconsistent (mutually exclusive) i.e., no value
of the variable satisfy all of the constraints simultaneously. There is not unique (single) feasible
region. It should be noted that infeasibility depends solely on constraints and has nothing to do
with the objective function.
Ex:
Maximize Z = 3 x1 – 2 x2
Subject to x1 + x2 ≥ 1
2 x1 + 2 x2≤ 4
x1, x2 ≥ 0
Solution: x1 + x2 = 1 passes through (0, 1) (1, 0)
2 x1 + 2 x2 = 4 passes through (0, 2) (2, 0)
To satisfy the first constraint the solution must lie to the left of line AB. To satisfy the second
constraint the solution must lie to the right of line CD. There is no point (x1, x2) which satisfies
both the constraints simultaneously. Hence, the problem has no solution because the constraints
are inconsistent.
Note: The geometric method of solving linear programming problems presented before. The
graphical method is useful only for problems involving two decision variables and relatively few
problem constraints.

What happens when we need more decision variables and more problem constraints?
We use an algebraic method called the simplex method, which was developed by George B.
DANTZIG (1914-2005) in 1947 while on assignment with the U.S. Department of the air force.

Simplex Method

Most real-world linear programming problems have more than two variables and thus are too
complex for graphical solution. A procedure called the simplex method may be used to find the
optimal solution to multivariable problems. The simplex method is actually an algorithm (or a set
of instructions) with which we examine corner points in a methodical fashion until we arrive at
the best solution- highest profit or lowest cost. Computer programs and spreadsheets are
available to handle the simplex calculations for you. But you need to know what is involved
behind the scenes in order to best understand their valuable outputs.

Summary of the Simplex Method

 Add slack variables to change the constraints into equations and write all variables to the
left of the equal sign and constants to the right.
 Write the objective function with all nonzero terms to the left of the equal sign and zero
to the right. The variable to be maximized must be positive.
 Set up the initial simplex tableau by creating an augmented matrix from the equations,
placing the equation for the objective function last.
 Determine a pivot element and use matrix row operations to convert the column
containing the pivot element into a unit column.
 If negative elements still exist in the bottom row, repeat Step 4. If all elements in the
bottom row are positive, the process has been completed.
 When the final matrix has been obtained, determine the final basic solution. This will
give the maximum value for the objective function and the values of the variables where
this maximum occurs.
Example
Maximize: P = 3x + 4y subject to:
 x + y≤ 4
2x + y ≤ 5
x≥ 0, y≥ 0
Our first step is to classify the problem. Clearly, we are going to maximize our objective
function, all are variables are nonnegative, and our constraints are written with
our variable combinations less than or equal to a constant. So this is a standard maximization
problem and we know how to use the simplex method to solve it.
We need to write our initial simplex tableau. Since we have two constraints, we need
to introduce the two slack variables u and v. This gives us the equalities
x+y+u=4
2x + y +v = 5
We rewrite our objective function as −3x−4y+P = 0 and from here obtain the system
of equations
x+y+u=4
2x + y = 5
−3x − 4y + P = 0
This gives us our initial simplex tableau:

:
To find the column, locate the most negative entry to the left of the vertical line (here this is −4).
To find the pivot row, divide each entry in the constant column by the entry in the corresponding
in the pivot column. In this case, we‘ll get 4/1 as the ratio for the first row and 5/1 for the ratio in
the second row. The pivot row is the row corresponding to the smallest ratio, in this case 4. So
our pivot element is the in the second column, first row, hence is 1.
Now we perform the following row operations to get convert the pivot column to a unit column

Our simplex tableau has transformed into

Notice that all of the entries to the left of the vertical line in the last row are nonnegative.
We must stop here!
To read off the solution from the table, first find the unit columns in the table. The variables
above the unit columns are assigned the value in the constant column in the row where the 1 is in
the unit column. Every variable above a non-unit column is set to 0. So here y = 4, v = 1, P = 16,
x = 0, and u = 0.
Thus, our maximum occurs when x = 0, y = 4 and the maximum value is 16.

Artificial Variables Techniques

INTRODUTION
LPP in which constraints may also have ≥ and = signs after ensuring that all bi ≥0 are considered
in this section. In such cases basis of matrix cannot be obtained as an identity matrix in the
starting simplex table, therefore we introduce a new type of variable called the artificial variable.
These variables are fictitious and cannot have any physical meaning. The artificial variable
technique is a device to get the starting basic feasible solution, so that simplex procedure may be
adopted as usual until the optimal solution is obtained. To solve such LPP there are two methods.
(i) The Big M Method or Method of Penalties.
(ii) The Two-phase Simplex Method.

THE BIG M METHOD

The following steps are involved in solving an LPP using the Big M method.
Step 1 Express the problem in the standard form.
Step 2 Add non-negative artificial variables to the left side of each of the equations
corresponding to constraints of the type ≥ or = However, addition of these artificial variable
causes violation of the corresponding constraints. Therefore, we would like to get rid of these
variables and would not allow them to appear in the final solution. This is achieved by assigning
a very large penalty (-M for maximization and + M for minimization) in the objective function.
Step 3 Solve the modified LPP by simplex method, until anyone of the three cases may arise.
BIG M METHOD CRIERION: OPTIMALITY
The optimal solution to the augmented problem to the original problem if there are no artificial
variables with non zero value in the optimal solution.
BIG M METHOD CRIERION: NO FEASIBLE SOLUTION
If any artificial variable is in the basis with nonzero value at the optimal solution of the
augmented problem, then the original problem has no feasible solution. The solution satisfies the
constraints but does not optimize the objective function, since it contains a very large penalty M
and is called pseudo optimal solution.
BIG M METHOD CRIERION: DEGENERATE SOLUTION
If at least one artificial variable in the basis at zero level and the optimality condition is satisfied
then the current solution is an optimal basic feasible solution (though degenerated solution).
Note: While applying simplex method, whenever an artificial variable happens to leave the basis,
we drop that artificial variable and omit all the entries corresponding to its column from the
simplex table.
Ex :
Use Big M method to Maximize z = 3x1 + 2x2 Subject to the constraints
2x1+x2 ≤ 2
3x1+4x2 ≥ 2
X1, x2 ≥ 0
SOLUTION
Step 1. Express the problem in standard form
Slack variables s1 and s2 are add and subtracted from the left-hand sides of the constraint 1 and 2
respectively to convert them to equations. These variable s2 is called negative slack variable or
surplus variable. Variable s1 represents excess of availability of 2 units on constraint 1, s2
represents excess of requirement of 12 on constraint 2 . Since they represent 'free', the cost/profit
coefficients associated with them in the objective function are zeros. The problem, therefore, can
be written as follows
Maximize Z = 3x1 + 2x2+0s1+0s1
2x1+x2 +s1 = 2
3x1+4x2 - s2 = 2
X1, x2 , s1, s2 ≥ 0

Step 2. Find initial basic feasible solution

Putting x1 = x2 = 0, we get s1=2, s2 =-12 as the first basic solution but it is not feasible as s2
have negative values that do not satisfy the non-negativity restrictions. Therefore, we introduce
artificial variables A1 in the second constraint, which take the form
2x1+x2 +s1 = 2
3x1+4x2 - s2+ A1 = 2
X1, x2 , s1, s2, A1 ≥ 0
Now artificial variables with values greater than zero violate the equality in constraints
established in step1. Therefore, A1 should not appear in the final solution. To achieve this, they
are assigned a large unit penalty (a large negative value, - M) in the objective function, which
can be written as Maximize z = 3x1 + 2x2 + 0s1 + 0s2 –MA1
Subject to 2x1+x2 +s1 = 2
3x1+4x2 - s2+ A1 = 2
X1, x2 , s1, s2, A1 ≥ 0
Eliminating 1 A from the second equation, modified objective function can be written as
Maximize z = (3 +3M)x1+ (2+ 4M)x2+ 0s1- M s2- 12M
Let M =50 as default value, then, we have
Maximize = z 153x1+ 202x2+ 0s -5s2- 600
Problem, now, has five variables and two constraints. Three of the variables have to be zeroised
to get initial basic feasible solution to the 'artificial system'.
Putting x1= x2= s2=0, we get
The starting feasible solution is s1= 2, A1 = 12 and z = - 600
Note that we are starting with a very heavy negative profit which we shall maximize during the
solution.

First iteration simplex tableau

To improve this solution, we determine that x2 is the entering variable, because -202 is
the smallest entry in the bottom row.

Second iteration simplex tableau

Since all Z coefficients and an artificial variable appears in the objective row at positive level,
the solution of given LPP does not possess any feasible solution.

THE TWO PHASE METHOD

In the preceding section we observed that it was frequently necessary to add artificial variables to
the constraints to obtain an initial basic feasible solution to an L.P. problem. If the problem is to
be solved, the artificial variables must be driven to zero. The two-phase method is another
method to handle these artificial variables. Here the L.P. problem is solved in two phases.
PHASE I
In this phase we find an initial basic feasible solution to the original problem. For this all
artificial variables are to be driven to zero. To do this an artificial (Auxiliary) objective function
(r) is created which is the sum of all the artificial variables. This new objective function is then
minimized, subject to the constraints of the given (original) problem, using the simplex method.
At the end of phase I, two cases arise:

TWO PHASE METHOD CRIERION: NO FEASIBLE SOLUTION

If the minimum value of r > 0, and at least one artificial variable appears in the basis at a positive
level, then the given problem has no feasible solution and the procedure terminates.

TWO PHASE METHOD CRIERION: OPTIMALITY

If the minimum value of r = 0, and no artificial variable appears in the basis, then a basic feasible
solution to the given problem is obtained. The artificial column (s) are deleted for phase II
computations. If the minimum value of r = 0 and one or more artificial variables appear in the
basis at zero level, then a feasible solution to the original problem is obtained. However, we must
take care of this artificial variable and see that it never becomes positive during phase II
computations. Zero cost coefficient is assigned to this artificial variable and it is retained in the
initial table of phase II. If this variable remains in the basis at zero level in all phase II
computations, there is no problem. However, the problem arises if it becomes positive in some
iteration. In such a case, a slightly different approach is adopted in selecting the outgoing
variable. The lowest non-negative replacement ratio criterion is not adopted to find the outgoing
variable. Artificial variable (or one of the artificial variables if there are more than one) is
selected as the outgoing variable. The simplex method can then be applied as usual to obtain the
optimal basic feasible solution to the given L.P. problem.

PHASE II
Use the optimum basic feasible solution of phase I as a starting solution for the original LPP.
Assign the actual costs to the variable in the objective function and a zero cost to every artificial
variable in the basis at zero level. Delete the artificial variable column from the table which is
eliminated from the basis in phase I. Apply simplex method to the modified simplex table
obtained at the end of phase I till an optimum basic feasible is obtained or till there is an
indication of unbounded solution.

REMARKS
1. In phase I, the iterations are stopped as soon as the value of the new (artificial) objective
function becomes zero because this is its minimum value. There is no need to continue
till the optimality is reached if this value becomes zero earlier than that.
2. Note that the new objective function is always of minimization type regardless of
whether the original problem is of maximization or minimization type.

EX:

Consider the following linear programming model and solve it using the two-phase method.
Phase 1
The model for phase 1 with its revised objective function is shown below. The corresponding
initial table is presented in Table.
objective function:

Min r = A1+A2
= 160 -7x1 – 14x2- 18x3+S1+ S2
subject to
4x1 +8x2 + 6x3 – S1 + A1 = 64
3x1 +6x2 + 12x3 – S2 + A2 = 64
X1, X2, X3, S1, S2, A1, A2≥ 0
Initial Table of Phase 1

First iteration simplex tableau

Optimal simplex tableau of phase 1

The set of basic variables in the optimal table of phase 1 does not contain artificial variables. So,
the given problem has a feasible solution.
Phase 2
The only one iteration of phase 2 is shown in Table one can verify that Table gives the optimal
solution. The solution in Table is optimal and feasible. The optimal results are presented below.
by x1=0, x2 =3.2=6/5, x3 = 6.4 and min z=153.6
Initial Table of Phase 2

Optimal Table of Phase 2

The optimal results are presented by x1=0, x2 =3.2=6/5, x3 = 6.4 and min z=153.6
UNIT – II TRANSPORTATION PROBLEM :

Introduction:

The Transportation problem is one of the sub classes of L.P.Ps in which the objective is to
transport various quantities of a single homogeneous commodity, that are initially stored at
various origins to different destinations in such a way that the total transport cost is minimum.
To Achieve this objective we must know the amount and location of available supplies and the
quantities demanded, In addition , we must know that costs that result from transporting one unit
of commodity from various origins to various destinations.

General Transportation Problem:

Let ai=quantity of commodity available at origin i

bj= quantity of commodity needed at destination j
cij=cost of transporting one unit of commodity from origin i to destination j
xij=quantity transported from origin i to destination j

Then the problem is determined the transportation schedule so as to minimize the total
transportation cost satisfying supply and demand constraints.
Mathematically, the problem may be stated as a LPP as follows.

Minimize z = subject to the constraints

, j=1,2,…n

, i=1,2,…n and ≥ 0, for all I and j

Existence of feasible solution:

A necessary and sufficient condition for existence of a feasible solution to the general
transportation problem is

=0

Existence of optimum solution:

There always exists an optimum solution to a transportation problem

Basic feasible solution:

The number of basic variables of the general transportation problem at any stage of feasible
solution must be m+n-1.

NOTE:

1. When the total demand is equal to total supply then the transportation table is said to be
balanced, otherwise unbalanced.
2. The allocated cells in the transportation table will be called occupied cells and empty
cells are called non-occupied cells.

The transportation table:

Since the transportation problem is just a special case of general LPP.

Destination supply

x11 x12 …. X1n a1

X21 X22 …. X1n a2

Xm1 Xm2 … Xmn am

b1 b2 bn

Demand

Solution of the transportation problem

The solution of a transportation problem involves the following major steps.
Step 1 : Formulate the given problem as a LPP.
Step 2 : Setup the given LPP in the tabular form known as a Transportation table.
Step 3 : Find an initial basic feasible solution that must satisfy all the supply and demand
conditions.
Step 4 : Examine the solution obtained in step 3 for optimality.
Step 5 : If the solution is not optimum modified the shipping schedule by including that un
occupied cell whose inclusion may result in an improved solution.
Step 6 : Repeat Step 3 until no further improvement is possible.
We shall now discuss various methods available for finding an initial basic feasible solution and
then attaining an optimum solution.
Finding an Initial Basic Feasible Solution:
There are several methods available to obtain an initial basic feasible solution however we shall
discuss here the following three methods.
1. North – West Corner Method
2. Least Cost Method
3. Vogles Approximation Method

North – West Corner Method:

Step1: Select the upper left (north-west) cell of the

transportation matrix and allocate the maximum possible value to X11 which is equal to
min(a1,b1).
Step2:
• If allocation made is equal to the supply available at the first source (a1 in first row), then
move vertically down to the cell (2,1).
• If allocation made is equal to demand of the first destination (b1 in first column), then
move horizontally to the cell (1,2).
• If a1=b1 , then allocate X11= a1 or b1 and move to cell (2,2).
Step3: Continue the process until an allocation is made in the south-east corner cell of the
transportation table.
Example: Solve the Transportation Table to find Initial Basic Feasible Solution using
North-WestCornerMethod.
TotalCost=19*5+30*2+30*6+40*3+70*4+20*14
= Rs. 1015
D1 D2 D3 D4 Supply
19 30 50 10
S1 7
5 2
70 30 40 60
S2 9
6 3
40 8 70 20
S3 18
4 14
Demand 5 8 7 14 34

Least Cost Method :

Step1: Select the cell having lowest unit cost in the entire table and allocate the minimum of
supply or demand values in that cell.
Step2: Then eliminate the row or column in which supply or demand is exhausted. If both the
supply and demand values are same, either of the row or column can be eliminated.
In case, the smallest unit cost is not unique, then select the cell where maximum allocation
can be made.
 Step3: Repeat the process with next lowest unit cost and continue until the entire available
supply at various sources and demand at various destinations is satisfied.

The total transportation cost obtained by this method

=8*8+10*7+20*7+40*7+70*2+40*3
=Rs.814
Here, we can see that the Least Cost Method involves a lower cost than the North-West
Corner Method.

Vogel's Approximation Method

This method also takes costs into account in allocation. Five steps are involved in applying this
heuristic:

Step 1: Determine the difference between the lowest two cells in all rows and columns,
including dummies.

Step 2: Identify the row or column with the largest difference. Ties may be broken arbitrarily.

Step 3: Allocate as much as possible to the lowest-cost cell in the row or column with the
highest difference. If two or more differences are equal, allocate as much as possible to the
lowest-cost cell in these rows or columns.

Step 4: Stop the process if all row and column requirements are met. If not, go to the next step.
Step 5: Recalculate the differences between the two lowest cells remaining in all rows and
columns. Any row and column with zero supply or demand should not be used in calculating
further differences. Then go to Step 2.

The Vogel's approximation method (VAM) usually produces an optimal or near- optimal starting
solution. One study found that VAM yields an optimum solution in 80 percent of the sample
problems tested.

The total transportation cost obtained by this method

= 8*8+19*5+20*10+10*2+40*7+60*2
= Rs.779
Here, we can see that Vogel’s Approximation Method involves the lowest cost than North-West
Corner Method and Least Cost Method and hence is the most preferred method of finding initial
basic feasible solution.

Assignment problem
 Assignment problem is a particular class of transportation linear programming problems
 Supplies and demands will be integers (often 1)
 Traveling salesman problem is a special type of assignment problem
Objectives
 To structure and formulate a basic assignment problem
  To demonstrate the formulation and solution with a numerical example
 To formulate and solve traveling salesman problem as an assignment problem
Structure of Assignment Problem
 Assignment problem is a special type of transportation problem in which
 Number of supply and demand nodes are equal.
 Supply from every supply node is one.
 Every demand node has a demand for one.
 Solution is required to be all integers.
Goal of an general assignment problem: Find an optimal assignment of machines (laborers) to
jobs without assigning an agent more than once and ensuring that all jobs are completed
 The objective might be to minimize the total time to complete a set of jobs, or to
maximize skill ratings, maximize the total satisfaction of the group or to minimize
the cost of the assignments
 This is subjected to the following requirements:
 Each machine is assigned no more than one job.
 Each job is assigned to exactly one machine.
Formulation of Assignment Problem
 Consider m laborers to whom n tasks are assigned
 No laborer can either sit idle or do more than one task
 Every pair of person and assigned work has a rating
 Rating may be cost, satisfaction, penalty involved or time taken to finish the job
 N2 such combinations of persons and jobs assigned
 Optimization problem: Find such job-man combinations that optimize the sum of ratings
among all.
 Let xij be the decision variable
 The objective function is
m n
Minimize c
i 1 j 1
ij xij

Since each task is assigned to exactly one laborer and each laborer is
assigned only one job, the constraints are
n

x
i 1
ij 1 for j  1, 2,...n
n

x
j 1
ij 1 for i  1, 2,...m

xij  0 or 1

 Due to the special structure of the assignment problem, the solution can be found out
using a more convenient method called Hungarian method.
Unit – III Replacement
Unit –IV Game Theory
Introduction

Game theory is a formal methodology and a set of techniques to study the interaction of rational agents in
strategic settings. ‗Rational‘ here means the standard thing in economics: maximizing over well-defined
objectives; ‗strategic‘ means that agents care not only about their own actions, but also about the actions
taken by other agents. Note that decision theory — which you should have seen at least a bit of last term
— is the study of how an individual makes decisions in non-strategic settings; hence game theory is
sometimes also referred to as multi-person decision theory. The common terminology for the field
comes from its putative applications to games such as poker, chess, etc. However, the applications we are
usually interested in have little directly to do with such games. In particular, these are what we call ―zero-
sum‖ games in the sense that one player‘s loss is another player‘s gain; they are games of pure conflict. In
economic applications, there is typically a mixture of conflict and cooperation motives.

What is a Game?
A game is a formal description of a strategic situation.
Game theory
Game theory is the formal study of decision-making where several players must make
choices that potentially affect the interests of the other players.

Elements of a Game

There are three main elements of a game:

 The players.
 The strategies of each player.
 The consequences (payoffs) for each player for every possible profile of strategy choices
of all players.

Fundamental Principles of Game Theory

When analyzing any game, we make the following assumptions about both players:

 Each player makes the best possible move.

 Each player knows that his or her opponent is also making the best possible move.

TYPES OF GAMES
1. Two-person games and n-person games.
In two person games, the players may have many possible choices open to them for each play of
the game but the number of player‘s remains only two. Hence it is called a two person game. In
case of more than two persons, the game is generally called n-person game.
2. Zero sum game.
A zero sum game is one in which the sum of the payment to all the competitors is zero for every
possible outcome of the game in a game if the sum of the points won equals the sum of the points
lost.

3. Two person zero sum game

A game with two players, where the gain of one player equals the loss to the other is known as a
two person zero sum game. It also called rectangular form. The characteristics of such a game
are.
(i) Only two players participate in the game.
(ii) Each player has a finite number of strategies to use.
(iii) Each specific strategy results in a payoff.
(iv) Total payoff to the two players at the end of each play is zero.

SADDLE POINT
A saddle point is a position in payoff matrix where the maximum of row minima coincides with
the minimum of column maxima. The payoff at the saddle point is called the value of the game.

Strategy:
A Strategy is a set of best choices for a player for an entire game.

Pure Strategy:
A pure strategy defines a specific move or action that a player will follow in every possible
attainable situation in a game.

Mixed strategy:
A mixed strategy is an active randomization, with given probabilities that determines the
player‘s decision. As a special case, a mixed strategy can be the deterministic choice of one of
the given pure strategies.

Payoff :
The payoff or outcome is the state of the game at its conclusion. In games like chess the payoff is
win or loss.
Payoff matrix

Suppose the player A has ‗m‘ activities and the player B has ‗n‘ activities. Then a payoff matrix
can be formed by adopting the following rules
1. Row designations for each matrix are the activities available to player A
2. Column designations for each matrix are the activities available to player B
3. Cell entry Vij is the payment to player A in A‘s payoff matrix when A chooses the
activity i and B chooses the activity j.
4. With a zero-sum, two-person game, the cell entry in the player B‘s payoff matrix will be
negative of the corresponding cell entry Vij in the player A‘s payoff matrix so that sum of
payoff matrices for player A and player B is ultimately zero.
Value of the game
Value of the game is the maximum guaranteed game to player A (maximizing player) if both
the players uses their best strategies. It is generally denoted by ‗V‘ and it is unique.

THE MAXIMIN-MIINMAX PRINCIPLE

This principle is used for the selection of optimal strategies by two players. Consider two players
A and B. A is a player who wishes to maximize his gain while player B wishes to minimize his
losses. Since A would like to maximize his minimum gain, we obtain for player A, the value
called maximize value and the corresponding strategy is called maximize strategy. On the other
hand, since player B wishes to minimize his losses, a value called the Minimax value which is
the minimum of the maximum losses is found. The corresponding strategy is called the minimax
strategy. When these two are equal, the corresponding strategies are called optimal strategy and
the game is said to have a saddle point. The value of the game is given by the saddle point. The
selection of maximin and minimax strategies by A and B is based upon the so-called maximin –
minimax principle which guarantees the best of the worst results.

Dominance property

Sometimes it is observed that one of the pure strategies of either player is always inferior to at
least one of the remaining ones. The superior strategies are said to dominate the inferior ones. In
such cases of dominance, we reduce the size of the payoff matrix by deleting those strategies
which are dominated by others. The general rules for dominance are:
I. If all the elements of a row are less than or equal to the corresponding elements of any
other row then row is dominated by the row.
II. If all the elements of a column are greater than or equal to the corresponding elements of
other column then column, then column is dominated by the column.
III. Dominated rows and columns may be deleted to reduce the size of the pay-off matrix as
the optimal strategies will remain unaffected.
IV. If some linear combinations of some rows dominates row, then the row will be deleted.
Similar arguments follow for column.
UNIT – V WAITING LINES
Queueing theory is the mathematical study of waiting lines, or queues.

Significance:
We come in contact with waiting line systems, or queuing systems, everywhere and everyday.
May it be waiting in line for your morning coffee, opening up your email account to see your list
of new messages, or stopping at a red light in a traffic intersection, you are participating in a
waitinglinesystem.

As a business, waiting line systems are especially important to the operations management of the
organization.

Structure of waiting lines:

Each specific situation will be different, but waiting line systems are essentially composed of
four major elements:

1. An input of customers or items to make a customer population. This population can be

finite or infinite
2. A waiting line system of customers or items
3. Workstations or operations that perform one or more activities
4. A priority rule that selects the next customer or item on which the activities perform

SINGLE-SERVER WAITING LINE MODEL

The easiest waiting line model involves a single-server, single-line, single-phase system.
The following assumptions are made when we model this environment:
1. The customers are patient (no balking, reneging, or jockeying) and come from a population
that can be considered infinite.
2. Customer arrivals are described by a Poisson distribution with a mean arrival rate of ƛ_
(lambda). This means that the time between successive customer arrivals follows an exponential
distribution with an average of 1/ƛ_.
3. The customer service rate is described by a Poisson distribution with a mean service rate of µ_
(mu). This means that the service time for one customer follow an exponential distribution with
an average of 1/ƛ_.
4. The waiting line priority rule used is first-come, first-served.
Using these assumptions, we can calculate the operating characteristics of a waiting line system
using the following formulas:
MULTISERVER WAITING LINE MODEL
In the single-line, multi server, single-phase model, customers form a single line and are served
by the first server available. The model assumes that there are s identical servers, the service time
distribution for each server is exponential, and the mean service time is 1/µ. Using these
assumptions, we can describe the operating characteristics with the following formulas:

Distribution Of Arrivals:

When describing a waiting system, we need to define the manner in which customers or the
waiting units are arranged for service. Waiting line formulas generally require an arrival rate, or
the number of units per period (such as an average of one every six minutes). A constant arrival
distribution is periodic, with exactly the same time between successive arrivals. In productive
systems, the only arrivals that truly approach a constant interval period are those subject to
machine control. Much more common are variable (random) arrival distributions. In observing
arrivals at a service facility, we can look at them from two viewpoints: First, we can analyze the
time between successive arrivals to see if the times follow some statistical distribution. Usually
we assume that the time between arrivals is exponentially distributed. Second, we can set some
time length (T ) and try to determine how many arrivals might enter the system within T. We
typically assume that the number of arrivals per time unit is Poisson distributed.

Exponential Distribution
In the first case, when arrivals at a service facility occur in a purely random fashion, a plot of the
inter arrival times yields an exponential distribution
The probability function is
f (t) = λe−λt
where λ is the mean number of arrivals per time period.
E X H I B I T TN6 . 3
Poisson Distribution

In the second case, where one is interested in the number of arrivals during some time period T,
the distribution obtained by finding the probability of exactly n arrivals during T. If the arrival
process is random, the distribution is the Poisson, and the formula is
UNIT – VI INVENTORY
Unit – VII
Dynamic Programming:
Many decision making problems involve a process that takes place in several stages in such a
way that at each stage, the process is dependent on the strategy chosen. Such types of problems
are called Dynamic Programming Problems. Thus dynamic programming is concerned with the
theory of multi stage decision process.

Principle of Optimality
It may be interesting to note that the concept of dynamic programming is largely based upon the
principle of optimality due to Bellman, viz.,
―An optimal policy has the property that whatever the initial state and initial decision are, the
remaining decisions must continue an optimal policy with regard to the state resulting from the
first decision‖
The principle of optimality implies that given the initial state of a system, an optimal policy for
the subsequent stage does not depend upon the policy adopted at the preceding stages. That is,
the effect of a current policy decision on any of the policy decisions of the preceding stages need
not be taken into account at all. It is usually referred to as the Markovian property of dynamic
programming.
UNIT – VIII SIMULATION