Operations Research An Introduction

Tenth Edition

Chapter 3
The Simplex Method and
Sensitivity Analysis

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.1. LP Model in Equation Form
The development of the simplex method computations is facilitated
by imposing two requirements on the LP model:

1. All the constraints are equations with nonnegative right-hand side.

2. All the variables are nonnegative.

Converting inequalities into equations with nonnegative right-

hand side:

To convert a (<=)-inequality to an equation, a nonnegative slack

variable is added to the left-hand side of the constraint.

For example, the M1-constraint of the Reddy Mikks model:

3.1. LP Model in Equation Form
Conversion from >= to = is achieved by subtracting a nonnegative
surplus variable from the left-hand side of the inequality.

Dealing with unrestricted variables.

• The use of an unrestricted variable in an LP model is
demonstrated in the multiperiod production smoothing model
(Example 2.4-4).
• The unrestricted variable Si represents the number of workers
hired or fired in period i.
• In the same example, the unrestricted variable is replaced by two
nonnegative variables by using the substitution.

Si-: Number of workers hired, Si+: Number of workers fired.

3.2. Transitions from Graphical to Algebraic Solution

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.2. Transitions from Graphical to Algebraic Solution
For example, the
equation x + y = 1 has
m = 1 and n = 2 and
yields an infinite number
of solutions because
any point on the straight
line x + y = 1 is a
solution.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.2. Transitions from Graphical to Algebraic Solution
Basic solutions correspond
to the corner points in the
graphical solution space.

They are determined by

setting n - m variables
equal to zero and solving
the m equations for the
remaining m variables,
provided the resulting
solution is unique.

This means that the

maximum number of corner
points is

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Example 3.2.1
Consider the following LP with two variables:
Solution Space of Example 3-2-1

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Example 3.2.1
Algebraically, the solution space of the LP is represented by the
following m = 2 equations and n = 4 variables:

The basic solutions are determined by setting n – m(= 4 - 2 = 2)

variables equal to zero and solving for the remaining m( = 2)
variables.

For example, if we set x1 = 0 and x2 = 0, the equations provide the

unique basic solution

This solution corresponds point A in graphical solution space.

Example 3.2.1
Another point can be determined by setting s1 = 0 and s2 = 0 and
then solving the resulting two equations:

The associated basic solution is (x1 = 1, x2 = 2), or point C.

The (maximum) number of corner points is

Example 3.2.1
To complete the transition from the graphical to the algebraic
solution, the zero n – m variables are known as nonbasic variables.

The remaining m variables are called basic variables, and their

solution (obtained by solving the m equations) is referred to as basic
solution.
3.3. The Simplex Method
Rather than enumerating all the basic solutions (corner points),
the simplex method investigates only a “select few” of these
solutions. We will investigate on an example.
The simplex method always
starts at the origin where all the
decision variables (point A).

An increase in x1 or x2 (or both)

above their current zero values will
improve the value of z.

The design of the simplex method

does not allow simultaneous
increases in variables.
Instead, it targets
the variables one at
a time.
3.3.1. Iterative Nature of the Simplex Method
The variable slated for increase is the one with the largest rate of
improvement in z.

In the present example, the rate of improvement in the value of z

is 2 for x1 and 3 for x2. So we move to point B.
At point B, the simplex
method, as will be explained
later, will then increase the
value of x1 to reach the
improved corner point C,
which is the optimum.

The path of the simplex

algorithm always
connects corner points.
3.3.1. Iterative Nature of the Simplex Method
In the present example the path to the optimum is A  B  C.
Each corner point along the path is associated with an
iteration.

The simplex method always moves alongside the edges

of the solution space, which means that the method
does not cut across the solution space.

The simplex algorithm

cannot go from A to C
directly.
3.3.2. Computational Details of the Simplex Algorithm
Consider the Reddy Mikks model.

Next, we write the objective equation as

3.3.2. Computational Details of the Simplex Algorithm
The starting simplex tableau can be represented as follows:

The solution starts at the origin [(x1, x2) = (0, 0)], thus defining (x1, x2)
as the nonbasic variables and (s1, s2, s3, s4) as the basic variables.

In this solution, z=0, s1=24, s2=6, s3=1, s4=2.

The objective function z = 5x1 + 4x2 shows that the solution can be
improved by increasing the value of nonbasic x1 or x2 above zero.
3.3.2. Computational Details of the Simplex Algorithm
The starting simplex tableau can be represented as follows:

x1 is
to be increased because it has the most positive objective
coefficient.

In the simplex tableau where the objective function is written as

z - 5x1 - 4x2 = 0, the selected variable is the nonbasic variable with
the most negative coefficient in the objective equation.

This rule defines the so-called simplex optimality condition.

3.3.2. Computational Details of the Simplex Algorithm

x1 is known as the entering variable because it enters the basic

solution.

If x1 is the entering variable, one of the current basic variables must

leave— that is, it becomes nonbasic at zero level.

The mechanism to select the leaving variable is given in Table.

Simplex Method Ratios in the Reddy Mikks Model
• The computed ratios
are the intercepts of
the constraint lines
with the x1-axis.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Simplex Method Ratios in the Reddy Mikks Model
• The value of x1
must be
increased to the
smallest
nonnegative
intercept with the
x-axis to reach
corner point B.

• Any increase
beyond B is
infeasible.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.3.2. Computational Details of the Simplex Algorithm
At point B, the current basic variable s1 associated with constraint 1
assumes a zero value and becomes the leaving variable.

The rule associated with the ratio computations is referred

to as the simplex feasibility condition because it guarantees the
feasibility of the new solution.

The new solution point B is determined by “swapping” the entering

variable x1 and the leaving variable s1 in the simplex tableau to yield

The swapping is based on the Gauss-Jordan row operations.

3.3.2. Computational Details of the Simplex Algorithm
It identifies the entering variable column as the pivot column and
the leaving variable row as the pivot row with their intersection being
the pivot element.
3.3.2. Computational Details of the Simplex Algorithm
3.3.2. Computational Details of the Simplex Algorithm

In the tableu, the optimality condition shows that x2 (with the

most negative z-row coefficient) is the entering variable.
3.3.2. Computational Details of the Simplex Algorithm

The feasibility condition produces the following information:

Our entering variable is x2 and leaving variable is s2.

3.3.2. Computational Details of the Simplex Algorithm
After Gauss Jordan row operations are applied:

Based on the optimality condition, none of the z-row coefficients are

negative.

Hence, the last tableau is optimal.

3.3.2. Computational Details of the Simplex Algorithm
The optimum values of the variables in Basic column can be
interpreted as:
3.3.2. Computational Details of the Simplex Algorithm
A resource is designated as scarce if its associated slack variable is
zero—that is, the activities (variables) of the model have used the
resource completely.

Otherwise, if the slack is positive, then the resource is abundant

3.3.3. Summary of the Simplex Method
• In minimization problems, the optimality condition calls for selecting
the entering variable as the nonbasic variable with the most positive
objective coefficient in the z-row.

• As for the feasibility condition for selecting the leaving variable, the
rule remains unchanged.

• Optimality condition.
• The entering variable in a maximization (minimization) problem
is the nonbasic variable with the most negative (positive)
coefficient in the z-row.
• Ties are broken arbitrarily.
• The optimum is reached at the iteration where all the z-row
coefficients are nonnegative (nonpositive).
3.3.3. Summary of the Simplex Method
• Feasibility condition.
• For both the maximization and the minimization problems, the
leaving variable is the basic variable associated with the
smallest nonnegative ratio with strictly positive denominator.
• Ties are broken arbitrarily.
3.4. Artificial Starting Solution
As demonstrated in Example 3.3-1, LPs in which all the constraints
are (≤) with nonnegative right-hand sides offer a convenient all-slack
starting basic feasible solution.

Models involving (=) and/or (≥) constraints do not.

The procedure for starting “ill-behaved” LPs with (=) and (≥)
constraints is to use artificial variables that play the role of slacks at
the first iteration.

The artificial variables are then disposed of at a later iteration. Two

closely related methods are introduced here: the M-method and the
two-phase method.
3.4.1 M-Method
The M-method starts with the LP in equation form (Section 3.1)

If equation i does not have a slack, an artificial variable, Ri, is added to

form a starting solution similar to the all-slack basic solution.

However, because the artificial variables are not part of the original
problem, a modeling “trick” is needed to force them to zero value by
the time the optimum iteration is reached.

The desired goal is achieved by assigning a penalty defined as:

3.4.1 Example 3.4.1
3.4.1 Example 3.4.1
3.4.1 Example 3.4.1
3.4.1 Example 3.4.1

The penalty M must be sufficiently large relative to the original

objective coefficients to force the artificial variables to be zero.

In the present example, the objective coefficients of x1 and x2 are 4

and 1, respectively, and it appears reasonable to set M = 100.

The starting simplex tableau:

3.4.1 Example 3.4.1
The z-row must be made consistent with the rest of the tableau.

The right-hand side of the z-row in the tableau currently shows z = 0.

However, given the nonbasic solution x1 = x2 = x3 = 0, the current

basic solution is R1 = 3, R2 = 6, and x4 = 4 yields z = 900.

The fact that R1 and R2 have nonzero coefficients (-100, -100) in the
z-row (Different from example Example 3.3.1, where the z-row
coefficients of the slack are zero).

We need to substitute out R1 and R2 in the z-row using the following

row operation:
3.4.1 Example 3.4.1
The modified table:

x1 having the most positive coefficient in the z-row ( = 696) enters

the solution. R1 leaves the solution.
3.4.1 Example 3.4.1
After the entering and the leaving variables have been identified, we
use Gauss-Jordan operations:

The last tableau shows that x2 and R2 are the entering and leaving
variables, respectively.
Two more iterations are needed to reach the optimum:
3.4.2 Two-Phase Method
In the M-method, the use of the penalty, M, can result in computer
roundoff error.

The two-phase method eliminates the use of the constant M

altogether.

The method solves the LP in two phases:

Phase I attempts to find a starting basic feasible solution, and, if
one is found,
Phase II is invoked to solve the original problem.
3.4.2 Two-Phase Method
Phase I. Put the problem in equation form, and add the necessary
artificial variables to the constraints (exactly as in the M-method) to
secure a starting basic solution.

Next, find a basic solution of the resulting equations that always

minimizes the sum of the artificial variables, regardless of whether
the LP is maximization or minimization.

If the minimum value of the sum is positive, the LP problem has no

feasible solution. Otherwise, proceed to Phase II.

Phase II. Use the feasible solution from Phase I as a starting basic
feasible solution for the original problem.
3.4.2 Two-Phase Method
3.4.2 Two-Phase Method

As in the M-method, R1 and R2 are substituted out in the r-row by

using the following row operations:
3.4.2 Two-Phase Method
The new r-row is used to solve Phase I of the problem, which yields the
following optimum tableau:
3.4.2 Two-Phase Method
3.4.2 Two-Phase Method
The tableau associated with Phase II problem is thus given as:

Again, because the basic variables x1 and x2 have nonzero coefficients

in the z-row:
3.4.2 Two-Phase Method

The solution can be found after one iteration.

3.5. Special Cases in the Simplex Method
This section considers four special cases that arise in the use of the
simplex method.
3.5.1. Degeneracy
In the application of the feasibility condition of the simplex
method, a tie for the minimum ratio may occur and can be
broken arbitrarily.

When this happens, at least one basic variable will be zero in

the next iteration, and the new solution is said to be
degenerate.

Degeneracy can cause the simplex iterations to cycle

indefinitely, thus never terminating the algorithm.

The condition also reveals the possibility of at least one

redundant constraint.
3.5.1. Example 3.5.1
3.5.1. Example 3.5.1

8/4=2
4/2=2

In iteration 0, x3 and x4 tie for the leaving variable, leading to

degeneracy in iteration 1 because the basic variable x4 assumes a
zero value. The optimum is reached in one additional iteration.
Figure 3-5 LP Degeneracy in Example 3-5-
1

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.5.2. Alternative Optima
An LP problem may have an infinite number of alternative
optima when the objective function is parallel to a
nonredundant binding (Tr. bağlayıcı) constraint.

(i.e., a constraint that is satisfied as an equation at the optimal

solution).

Example 3.5.2 (Infinite Number of Solutions):

Example 3.5.2
The iterations:

Iteration 1 gives the optimum solution x1 = 0, x2 = 5/2, and z = 10

(point B in Figure 3.6).
Figure 3-6 LP Alternative Optima in
Example 3-5-2

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Example 3.5.2
The iterations:

The zero coefficient of nonbasic x1 indicates that x1 can be made

basic, altering the values of the basic variables without changing the
value of z. Iteration 2 does just that, using x1 and x4 as the entering
and leaving variables, respectively.
3.5.3. Unbounded Solution
In some LP models, the solution space is unbounded in at least
one variable—meaning that variables may be increased
indefinitely without violating any of the constraints.

The associated objective value may also be unbounded in this

case.

An unbounded solution space may signal that the model is

poorly constructed.

The most likely irregularity in such models is that some key

constraints have not been accounted for.

Another possibility is that estimates of the constraint

coefficients may not be accurate.
Example 3.5.3
Example 3.5.3

In the starting tableau, both x1 and x2 have negative z-equation

coefficients—meaning that an increase in their values will increase
the objective value.

Although x1 should be the entering variable (it has the most negative
z-coefficient), we note that all the constraint coefficients under x2 are
≤ 0—meaning that x2 can be increased indefinitely without violating
any of the constraints.
Figure 3-7 LP Unbounded Solution in
Example 3-5-3

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.5.4. Infeasible Solution
LP models with inconsistent constraints have no feasible solution.

This situation does not occur if all the constraints are of the type ≤
with nonnegative right-hand sides because the slacks provide an
obvious feasible solution.

For other types of constraints, penalized artificial variables are used

to start the solution.

If at least one artificial variable is positive in the optimum iteration,

then the LP has no feasible solution.

From the practical standpoint, an infeasible space points to the

possibility that the model is not formulated correctly.
Example 3.5.4

Using the penalty M = 100 for the artificial variable R, the following
tableau provide the simplex iterations of the model.
Example 3.5.4

Optimum iteration 1 shows that the artificial variable R is positive

(=4)—meaning that the LP is infeasible.

Figure 3.8 depicts the infeasible solution space.

Figure 3-8 Infeasible Solution of Example
3-5-4

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6. Sensitivity Analysis
In LP, the parameters (input data) of the model can change within
certain limits without causing changes in the optimum.

This is referred to as sensitivity analysis.

We will cover graphical sensitivity analysis and algebraic sensitivity

analysis.

3.6.1. Graphical Sensitivity Analysis

Two cases will be considered:

1. Sensitivity of the optimum solution to changes in the availability of

the resources (right-hand side of the constraints).

2. Sensitivity of the optimum solution to changes in unit profit or unit

cost (coefficients of the objective function).
Example 3.6.1 Changes in the Right-Hand Side

JOBCO manufactures two products on two machines.

A unit of product 1 requires 2 hrs on machine 1 and 1 hr on machine

2. For product 2, one unit requires 1 hr on machine 1 and 3 hrs on
machine 2.

The revenues per unit of products 1 and 2 are $30 and $20,
respectively.

The total daily processing time available for each machine is 8 hrs.
Example 3.6.1 Changes in the Right-Hand Side
Letting x1 and x2 represent the daily number of units of products 1
and 2, respectively, the LP model is given as:
Graphical Sensitivity Analysis (1 of 2)

Figure 3.9 illustrates the change in the optimum

solution when changes are made in the
capacity of machine 1.

If the daily capacity is increased from 8 to 9 hrs,

the new optimum will move to point G.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
The rate of change in optimum z resulting from changing machine 1
capacity from 8 to 9 hrs can be computed as:

A unit increase (decrease) in machine 1 capacity will increase

(decrease) revenue by $14.

The unit worth of a resource can be described as the rate of

change of the objective function per unit change of a resource.

Early LP developments have coined the abstract name dual (or

shadow) price for the unit worth of a resource.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
The dual price of $14/hr remains valid for changes
(increases or decreases) in machine 1 capacity that
move its constraint parallel to itself to any point on the
line segment BF.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
We compute machine 1 capacities at points B and F as follows:

The conclusion is that the dual price of $14.00/hr remains valid only
in the range:

Changes outside this range produce a different dual price (worth per
unit).

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
Using similar computations, the dual price for machine 2 is $2/hr.

It remains valid for changes in machine 2 capacity within the line

segment DE. Now:

The dual price ($2/hr) for machine 2 remains applicable for the range:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
Question 1. If JOBCO can increase the capacity of both machines,
which machine should receive priority?

Answer. From the dual prices for machines 1 and 2, each additional
hour of machine 1 increases revenue by $14, as opposed to only $2
for machine 2. Thus, priority should be given to machine 1.

Question 2. A suggestion is made to increase the capacities of

machines 1 and 2 at the additional cost of $10/hr for each machine.
Is this advisable?

Answer. For machine 1, the additional net revenue per hour is 14 -

10 = $4, and for machine 2, the net is $2 - $10 = - $8. Hence, only
machine 1 should be considered for capacity increase.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
Question 3. If the capacity of machine 1 is increased from 8 to 13
hrs, how will this increase impact the optimum revenue?

Answer. The dual price for machine 1 is $14 and is applicable in the
range (2.67, 16) hr. The proposed increase to 13 hrs falls within the
feasibility range. Hence, the increase in revenue is $14(13 – 8) =
$70, which means that the total revenue will be increased from $128
to $198 ( = $128 + $70).

Question 4. Suppose that the capacity of machine 1 is increased to

20 hrs, how will this increase affect the optimum revenue?

Answer. The proposed change is outside the feasibility range (2.67,

16) hr. Thus, we can only make an immediate conclusion regarding
an increase up to 16 hrs. Beyond that, further calculations are
needed to find the answer.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (1 of 2)
Question 5. How can we determine the new optimum values
of the variables associated with a change in a resource?

Answer. The optimum values of the variables will change.

However, the procedure for determining these values requires
additional computations, as will be shown in Section 3.6.2.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (2 of 2)
The optimum solution at point C remains
unchanged so long as the objective function lies
between lines BF and DE.

How can we determine ranges for the

coefficients of the objective function that will
keep the optimum solution unchanged at C?

Maximize z=

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Graphical Sensitivity Analysis (2 of 2)
Imagine now that line z is pivoted at C and that it
can rotate clockwise and counterclockwise.

The optimum solution will remain at point C so long

as z = c1x1 + c2x2 lies between the two lines x1 + 3x2
= 8 and 2x1 + x2 = 8. This means that the ratio c1/c2
can vary between 1/3 and 2/1, which yields the
following optimality range:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
 Graphical Sensitivity Analysis (2 of 2)
Question 1. Suppose that the unit revenues for products 1
and 2 are changed to $35 and $25, respectively. Will the
current optimum remain the same?
The new objective function is

Maximize

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
 Graphical Sensitivity Analysis (2 of 2)
Question 2. Suppose that the unit revenue of product 2 is
fixed at its current value c2 = $20. What is the associated
optimality range for the unit revenue for product 1, c1, that will
keep the optimum unchanged?

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.2. Algebraic Sensitivity Analysis-
Changes in the Right-Hand Side
A numeric example (the TOYCO model) will be used to facilitate
the presentation.

Example 3.6-3 (TOYCO Model)

TOYCO uses three operations to assemble three types of toys—
trains, trucks, and cars.

The daily available times for the three operations are 430, 460,
and 420 mins, respectively, and the revenues per unit of toy train,
truck, and car are $3, $2, and $5, respectively.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.2. Algebraic Sensitivity Analysis-
Changes in the Right-Hand Side
The assembly times per truck at the three operations are 1, 3, and
1 mins, respectively.

The corresponding times per train and per car are (2, 0, 4) and (1,
2, 0) mins (a zero time indicates that the operation is not used).

Mathematical Model:

Let x1, x2, and x3 represent the daily number of units assembled of
trains, trucks, and cars, respectively.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.2. Algebraic Sensitivity Analysis-
Changes in the Right-Hand Side
The associated LP model is given as:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.2. Algebraic Sensitivity Analysis-
Changes in the Right-Hand Side
Using x4, x5, and x6 as the slack variables for the constraints of
operations 1, 2, and 3, respectively, the optimum tableau is:

The solution recommends manufacturing 100 trucks and 230

cars but no trains.

The associated revenue is $1350.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
Suppose that D1, D2, and D3 are the (positive or negative) changes
made in the allotted daily manufacturing time of operations 1, 2, and
3, respectively.

The original TOYCO model can then be changed to

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.

The two shaded areas are identical.

Hence, if we repeat the same simplex iterations.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
After simplex iterations:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
The new optimum tableau provides the following optimal
solution:

Dual prices: The value of the objective function can be written as:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.

The equation shows that

1. A unit change in operation 1 capacity (D1 = ±1 min) changes z

by $1.
2. A unit change in operation 2 capacity (D2 = ±1 min) changes z
by $2.
3. A unit change in operation 3 capacity (D3 = ±1 min) changes z
by $0.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
Feasibility range: The current solution remains feasible if all the
basic variables remain nonnegative—that is,

Simultaneous changes D1, D2, and D3 that satisfy these

inequalities will keep the solution feasible.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
Suppose that the manufacturing time available for operations 1, 2,
and 3 are 480, 440, and 400 mins, respectively.

Then, D1 = 480 - 430 = 50, D2 = 440 - 460 = -20, and D3 = 400 -

420 = -20.

Substituting in the feasibility conditions, we get

The calculations show that x6 < 0, hence the current solution does
not remain feasible.
Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
Alternatively, if the changes in the resources are such that
D1 = -30, D2 = -12, and D3 = 10, then:

The new (optimal) feasible solution is x1=0 (nonbasic), x2 = 88,

x3 = 224, and x6 = 68 with z = 3(0) +2(88) + 5(224) = $1296.

Notice that the optimum objective value can also be computed

using the dual prices as z = 1350 + 1(-30) + 2(-12) + 0(10) =
$1296.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
The given conditions can produce the individual feasibility ranges
associated with changing the resources one at a time.

For example, a change in operation 1 time only means that D2 =

D3=0.

The simultaneous conditions thus reduce to:

We can show in a similar manner that the feasibility ranges for

operations 2 and 3 are:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
We can now summarize the dual prices and their feasibility ranges:

460

It is important to notice that the dual prices will remain applicable

for any simultaneous changes that keep the solution feasible, even
if the changes violate the individual ranges.

For example, the changes D1 = 30, D2 = -12, and D3 = 100 will

keep the solution feasible even though D1 = 30 violates the
feasibility range:
Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
Determination of dual prices and feasibility
ranges.
Showing the feasibility range:

We can compute the new optimum objective value from the dual
prices as:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
 3.6.3. Algebraic Sensitivity Analysis-
Objective Function
Definition of reduced cost. To facilitate the explanation of the
objective function sensitivity analysis, first we need to define
reduced costs.

The objective z-equation in the optimal tableau:

The optimal solution does not produce toy trains (x1 = 0).

The reason can be seen from the z-equation, where a unit

increase in x1 (above its current zero value) decreases z by $4.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
 3.6.3. Algebraic Sensitivity Analysis-
Objective Function
We can think of the coefficient of x1 in the z-equation (= 4) as a
unit cost because it causes a reduction in the revenue z.

But where does this “cost” come from?

We know that the revenue per unit of x1 is $3 (per the original

model).

We also know that the production of toy train incurs cost because it
consumes resources (operations time).

Thus, from the standpoint of optimization, the “attractiveness” of x1

depends on the cost of consumed resources relative to revenue.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-
Objective Function
This relationship defines the so-called reduced cost and is
formalized in the LP literature as:

In the original TOYCO model the revenue per unit for toy trucks (=
$2) is less than that for toy trains (= $3).

Yet the optimal solution recommends producing toy trucks (x2 =

100 units) and no toy trains (x1 = 0).

The reason is that the cost of the resources used by one toy truck
(i.e., operations time) is smaller than its unit price. The opposite
applies in the case of toy trains.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-
Objective Function
We can see that an unprofitable variable (such as x1) can be made
profitable in two ways:

Determination of the optimality ranges. We now turn our

attention to determining the conditions that will keep a solution
optimal. The development is based on the definition of reduced
cost.

In the TOYCO model, let d1, d2, and d3 represent the change in
unit revenues for toy trucks, trains, and cars, respectively. The
objective function then becomes:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-
Objective Function
We first consider the general situation in which all the
objective coefficients are changed simultaneously.

With the simultaneous changes, the z-row in the starting

tableau appears as:

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-
Objective Function
After iterations:

The new optimal tableau is the same as in the original optimal

tableau, except for the reduced costs (z-equation coefficients).

This means that changes in the objective-function coefficients

can affect the optimality of the problem only.

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-Objective Function

To illustrate the use of these conditions, suppose that the objective

function of TOYCO is changed from
z = 3x1 + 2x2 + 5x3 to z = 2x1 + x2 + 6x3.
Then, d1 = 2 - 3 = - $1, d2 = 1 - 2 = - $1, and d3 = 6 - 5 = $1.
Substitution in the given conditions yields

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved
3.6.3. Algebraic Sensitivity Analysis-Objective Function
The results show that the proposed changes will keep the
current solution (x1 = 0, x2 = 100, x3 = 230) optimal (with a new
value of z = 1350 + 100d2 + 230d3 = 1350 + -100 + 230 =
$1480).

The optimality ranges dealing with changing dj one at a time

can be developed from the simultaneous optimality conditions.

For example, suppose that the objective coefficient of x2 only is

changed to 2 + d2—meaning that d1 = d3 = 0 (Refer to z-column of
Table in previous slide).

Copyright © 2017, 2011, 2007 Pearson Education, Inc. All Rights Reserved