Operations Research II, Topic 1-6

OPERATIONS RESEARCH II
Introduction
Course Code:
CMS 300-A
Course Title:
Pre-requisite:
CMS 201-A: Operations Research I
Course Purpose
The course builds on Operations Research I. It introduces network models, dynamic
programming and integer linear programming.
Expected Learning Outcomes
At the end of the course, students should be able to:
1.
2.
3.
Solve linear programming problems using spreadsheets, LINDO and LINGO.

Use network models to solve operational problems such as the shortest route problem and
maximum flow problem.
Apply dynamic programming to analyze resource allocation problems and equipment
replacement problems.
Course Contents
Linear Programming: Simplex method (manual and using LINDO or excel software);
Markov Chain: Transition probabilities, initial states, steady-state probabilities, absorbing chains;
Network Models: Shortest route problem, maximum flow problem, minimum spanning tree
problem;
Replacement and Maintenance Analysis: Capital items (new and old) and items that fail
suddenly;
Dynamic Programming: Application to shortest route problems;
Non-linear Programming: Formulation and solution search-lagrangian approach and LINGO
soft ware;
Integer Linear Programming: Formulation and solution search using LINGO;
2
Teaching Methodology:
Tutorials and discussion.
Instructional Materials/Equipment
Sample reports.
Teaching Methodology:
Lectures, tutorials and discussion.
Instructional Materials/Equipment
Class with visual aids
Course Assessment/Student Performance
Continuous Assessment: 30%
Examination: 70%
(Grading as detailed under examination regulations)
Recommended Readings
1.
Panneerselvam, R. Operations Research: Prentice Hall of India, New Delhi, 2002.
2.
Ragsdale, Cliff T.; Spreadsheet Modelling and Decision Analysis 2nd edition South
Western College Publishing, Ohio, USA; 1998.
3.
Winston, Wayne L.; Operations Research 3rd edition; International Thomson

Publishing, Carlifornia; 1994.
Additional Readings
1.
Swamp, Kanti, Gupta, PK, & Mohan, Man 9th edition New Delhi; Sultan (hand and
sons, 2001).
2.
Swift, Loius: Quantitative Methods for Business, Management and Finance London:
Palgrave Macmillan, 2001.
3.
Oakshoft, Les: Essential Quantitative Methods for Business, Management and

Finance 2nd ed. London: Palgrave Macmillan, 2002.
4.
Buduick, F.S, McLeavey, Dennis and Mojena, R: Principles of Operations Research for
Management 2nd ed. Delhi: A.I.T.B.S. Publishers, 2004.
TABLE OF CONTENT
Contents
Introduction................................................................................................................................................... 2
Course Purpose.............................................................................................................................................. 2
Instructional Materials/Equipment ............................................................................................................... 3
Instructional Materials/Equipment ............................................................................................................... 3
Course Assessment/Student Performance ..................................................................................................... 3
TOPIC 1: LINEAR PROGRAMMING II.............................................................................................................. 6
TOPIC 2: MARKOV CHAINS AND ANALYSIS ................................................................................................ 71
TOPIC 3: NETWORK MODELS ...................................................................................................................... 90
TOPIC 4: MAINTENANCE AND REPLACEMENT ANALYSIS .......................................................................... 108
TOPIC 5:................................................................................................................................................... 122
TOPIC 6. ................................................................................................................................................... 132
TOPIC 1: LINEAR PROGRAMMING II

[ A] S I M P L E X AP P R O AC H
INTRODUCTION
Although the graphic method of solving linear programming problem is an invaluable aid
to understand its basic structure, the method is of limited application in industrial problems
as the number of variables occurring there is substantially large. A more general method
known as Simplex Method is suitable for solving linear programming problems with a
large number of variables. The method through an iterative process progressively
approaches and ultimately reaches to the maximum or minimum values of the objective
function. The method also helps the decision maker to infeasible problem.
PRINCIPLE OF SIMPLEX METHOD

Several business problems were formulated as linear programming problems in the
previous chapter. However, we were only able to solve for an optimal solution if the
problem had only two decision variables as the real-life problems containing more than
two decision variables cannot be solved by graphic method. For these reasons,
mathematical iterative procedure known as Simplex Method was developed in 1957 by
George B. Dantzig to solve complexities of such problems.
The simplex method is applicable to any problem that can be formulated in terms of linear
objective function subject to a set of linear constraints. There are no theoretical restrictions
placed on the number of decision variables or constraints contained in a problem, as the
simplex method, accompanied by the computational facility of a large computer, can solve
linear programming problems with several thousand variables and several thousand
constraints.
6
Computational procedure in the simplex method is based on the following fundamental

property:
The optimal solution to a linear programming problem, if it exists, always occurs at one
of the corner points of the feasible solution space.
The Simplex Algorithm is a systematic and efficient procedure for finding corner point solutions
and taking then for optimality. The evaluation of corner points always starts at the point of origin
(initial basic feasible solution) which is one of the corners of the feasible solution space. This
solution is then tested for optimality, i.e., it tests whether an improvement in the objective function
is possible by moving to adjacent corner point of the feasible function space. This solution is then
tested for optimality, i.e, it tests whether an improvement in the objective function is possible by
moving to adjacent corner point of the feasible solution space. If the improvement is possible then
at a new corner point, the solution is again tested for optimality. This iterative search for a better
corner point is repeated until an optimal solution, if it exists, is determined.
Basic terms involve in Simplex Procedure. Certain terms relevant for solving a linear
programming problem through simplex procedure are introduced below:
1.
Standard Form. A linear programme in which all of the constraints are written as
equalities. The optimal solution of the standard form of a linear programme is the same
optimal solution of the original formulation of the linear programme.
2.
Slack Variable. A variable added to the left-hand side of a less-than or equal to

constraint to convert the constraint into an equality is called a slack variable. In
economic terminology, the value of the non-negative variable can usually be interpreted
as the amount of unused resources.
Remarks. In economic terminology slack variables represent unused capacity and
surplus variables represent excess amount and the contribution (cost or profit
coefficient) associated with them is zero.
7
An inequality of the less-than or equal-to type is transformed into an equality by the

addition of a non-negative slack variable. The slack variables can be thought of as
imaginary products, each requiring for its production 1 unit of capacity from only one
of the resources of zero units of capacity from the other, and each yielding a profit of
zero, i.e., slack variable corresponds to the amount of unused capacity for the constraint
to which it is added.
Suppose in a particular problem, the ith constraint appears as

ai1x1 + ai2x2 ++ ainxn bi ; i = 1,2,, m.
By adding a suitable non-negative variable si to the left-hand side, the inequality

constraint can be written as:
ai1x1 + ai2x2 ++ ainxn +si = bi; i =1,2,,m, this new variable is called the slack
variable and may be interpreted as:
Slack = Requirement - Production
An inequality of the greater-than or equal-to type is transformed into an equality by

the subtraction of a non-negative surplus variable. These surplus variables represent
the excess amount by which a particular requirement is met. If the ith constraint appears
as
ai1x1 + ai2x2 ++ ainxn bi ; i = 1,2,, m.
then by subtracting positive quality s from the left hand side, the inequality constraint
can, therefore, be written as:
ai1x1 + ai2x2 ++ ainxn - si = bi ; i = 1,2,, m.

this new variable is called the surplus (or negative slack) variable and may be
interpreted as:
Surplus = Production - Requirement
3.
Surplus Variable. A variable subtracted from the left-hand side of the greater-than or
equal-to constraint, to convert the constraint into an equality is called a surplus
variable. The value of this variable can usually be interpreted as the amount over and
above the required minimum level.
4.
Basic Solution. For a system of m simultaneous linear equations in n variables (n>m),

a solution obtained by setting (n m) variables equals to zero and solving for the
remaining m variables is called a basic solution. In addition, the solution for the m
variables must be unique. The (n m) variables set equal to zero in any solution are
called non-basic variables. The other m variables whose values are obtained by solving
the remaining system of equations are referred to as basic variable.
5.
Basic Feasible Solution. A basic feasible solution to a feasible solution to a linear

programming problem is a basic solution for which the m variable solved for, are all
greater than or equal to zero. In other words, a basic solution which happens to be
feasible is called a basic feasible solution
Remarks. The following result (Hadley, 1969) generally helps us to identify the
extreme pints of the convex set of feasible solutions analytically
Every basic feasible solution of the problem is an extreme point of the convex set of
feasible solutions and every extreme point is a basic feasible solution of the set of
constraints.
When several variables are present in a linear programming problem it is no possible

to identify the extreme points geometrically. But we can identify them through the basic
feasible solutions. Since one of the basic feasible solutions will maximize or minimize
the objective function, we can carry out this search starting from one basic feasible
solution to another. The Simplex Method provides a systematic search so that the
objective function increases (in the case of maximization) progressive until the basic
feasible solution has been identified where the objective function is maximized. The
computational aspect of the simplex method is presented in the next section.
6.
Optimal (or Optimum) Solution any basic feasible solution which optimizes
(minimizes or maximizes) the objective function of a general L.P. problem is called an
optimal basic feasible solution to the general L.P problem
7.
Tableau Form. The form in which a linear programme must be written prior to setting
up the initial simplex tableau. When a linear programme is written in this form, its
matrix contains m unit columns corresponding to basic variables, and the values, of
these basic variables given by the quality column. A further requirement provides us
with a basic feasible solution.
8.
Simplex Tableau. A table used to keep track of the calculations made at each iteration
when the simplex solution method is employed.
9.
Zj Row. The numbers in this row under each variable represents the total contribution
of outgoing profit when one unit of a non-basic variable is introduced into the basis in
place of a basic variable.
10.
Cj Zj (or Net Evaluation or Index) Row. The row containing the net profit (or loss)
that will result from introducing one unit of the variable indicated in that column in the
solution. Numbers in index row are also known as shadow prices (or accounting
prices). Thus a positive (or negative) number in the index row indicates an algebraic
reduction (or increment) in the objective function if one unit of the variable at the head
of that column, were introduced in the basis (solution).
10
11.
(a) Pivot (or Key) Column. The column with the largest positive number in the net
evaluation row of maximization problem, or the largest negative number in the net
evaluation row in a minimization problem. It indicates which variable will enter the
solution next.
(b) Pivot (or Key) Row. The row corresponding to the variable that will leave the basis
in order to make room for the entering variable (as indicated by the new pivot column).
The departing variable will correspond to the smallest positive ratio found by dividing
the quality column values by the pivot column values for each row.
(c) Pivot (or Key) Number. The element at the intersection of the pivot row and pivot
column.
COMPUTATIONAL ASPECT OF SIMPLEX METHOD
Computational procedures in the simplex method require the construction of the Simplex
Tableau which can be done in different ways, all of which, however, led to the same
optimal solution. The initial simplex tableau is formed by writing out the coefficients and
constraints of a linear programming problem in a systematic tabular form. The rules used
for the construction of the initial simplex tableau are same in both the maximization and
minimization problems.
STEPS:
1
Formulate the linear programming model of the real world problem, i.e., obtain a
mathematical representation of the problems objective function and constraints as stated
below:
11
Maximize Z = c1x1 + c2x2 + + cnxn

Subject to the constraints
a11x1 + a12x2 ++ a1nxn b1
a21x1+ a22x2 + + a2nxn b2
am1x1 + am2x2 ++ amnxn bm

x1, x2,, xn 0
Express the mathematical model of LP problem in the standard form by adding slack
variables in the left-hand side of the constraints and assign a zero coefficient to these in the
objective function.
Thus we can restate the problem in terms of equations as follows:
Maximize Z = c1x1 + c2x2 + + cnxn + 0s1 + 0s2 +0sm

Subject to the linear constraints
a11x1 + a12x2 ++ a1nxn + s1 = b1
a21x1+ a22x2 + + a2nxn + s2 = b2
am1x1 + am2x2 ++ amnxn +sm = bm
12
where x1,x2,, xn and s1,s2,, sm are all non-negative. Note that the slack variables have
been assigned zero coefficients in the objective function. The reason is that their variables
typically contribute nothing to the value of the objective function.
Design the Initial Feasible Solution. An initial basic feasible solution is obtained by setting:
x1 = x2 = = xn = 0. Thus, we get s1 = b1, s2 = b2,, sm = bm
Set up the Initial Simplex Tableau. For computational efficiency and simplicity, the initial
basic feasible solution, the constraints of the standard LP problem as well as the objective
function can be displayed in a tabular formk, called the Simplex Tableau as shown below:
INITIAL SIMPLEX TABLEAU

Cj (contribution per unit)
CB Basic
c1
Value of
c2
cn
Coefficient Matrix
0
Minimum
Identify Matrix
ratio
variables basic
variables
b (=xB)
B
x1
x2
xn
s1
s2
sm
s1
b1
a11
x12
a1n
sm
s2
b2
a21
a22
a2n
sm
bm
am1
am2
amn
13
Contribution
loss per unit
CBjaij
Net
Cj Zj
= 0
c1
c2
cn
contribution
per units:
The interpretation of the above Tableau is given as under. Other simplex tableau will have similar
interpretations.
(i)
The first row, called the objective row of the simplex table indicates the values of Cj (j
subscripts refer to the column number) which are the coefficients of the (m +n) variables
in the objective function. These coefficients are obtained directly from the objective
function and the values of Cj would remain the same in the succeeding tables. The second
row of the table provides the major column headings for the table and these column
headings remain unchanged in succeeding tables of the simplex method.
(ii)
The first column labeled CB, also known as the objective column, lists the coefficients of
the current basic variables in the objective function. The second column labeled Basic
variables (also called Product mix column) points out the basic variables in the basis, and
in the initial simplex tableau these basic variables are the slack variables. The third column
labeled Solution values b (= xB), (Also called quality column) indicates the resources or
the solution values of the basic variables.
(iii)
The body matrix (under non-basic variables) 0n the initial simplex tableau consists of the
coefficients of the decision variables in the constrain set. The entries in the body matrix
can be interpreted as physical rates of substitution. In the initial simplex tableau, e.g., the
number aij gives the rate of substitution between si and xj. In other words if we wish to
produce a unit of xj, then aij units of si must be sacrificed.
14
(iv)
The identity matrix in the initial simplex tableau represents the coefficients of the slack
variables that have been added to the original inequalities to make them equations. Please
note that each simplex tableau contains an identity matrix under the basic variables. The
matrix under non-basic variables in the simplex tableau is called coefficient matrix. The
numbers aij in the coefficient matrix will either be negative, zero or positive.
(v)
To find an entry in the Zj row under a column, we multiply the entries of that column by
the corresponding entries of CB-column and add the products, i.e., Zj = CB aij. The Zj row
entries will all be equal to zero in the initial simplex tableau. The Zj entry under the
Solution column gives the current value of the objective function that would result if one
of the variables not included in the solution were brought into the solution.
(vi)
The final row labeled Cj Zj called the index (or net evaluation) row, is used to determine
whether or not the current solution is optimal. The calculation of Cj Zj row simply
involves subtracting each Zj value from the corresponding Cj value for that column, which
is written at the top of that column. We observe that Cj Zj values are meaningful for nonbasic variables only. This is because for a basic variable, Zj = 1 x Cj = Cj so that Cj Zj =
Cj = 0.
Each entry in the Cj Zj row (or index row) represent the net contribution (or net marginal
improvement) to the objective function that results by introducing one unit of each of the
respective column variables. A plus value indicates that a greater contribution can be made
by bringing the variable for the column into the solution whereas a negative value indicates
the amount by which contribution would decrease if one unit of the variable for that column
were brought into the solution.
Index row elements are also known as the shadow or (accounting) price.
15
Test the Solution for Optimality. Examine the index row of the above simplex tableau. If
all the elements in the index row are negative then the current solution is optimal. If there
exists some positive number, the current solution can be further improved by removing one
basic variable from the basis and replacing it by some non-basic one.
Revision of the Current Simplex Tableau. At each iteration, the simplex method moves
from the current basic feasible solution to a better basic feasible solution. This involves
replacing one current basic variable (called the departing variable) by a new non-basic
variable (called the entering variable).
(a)
Determine which variable to enter into the solution-mix next. One way of doing this
is by identifying the column (and hence the variable) with the largest positive
number in the Cj Zj row of the previous table. The value of Cj Zj element tells
the amount by which the value of the objective function will increase for every unit
of xj introduced into the solution. The column so identified is called the pivot (or
key) column (indicated by ). Suppose xj-column is the pivot column with entries
a1j, amj; then non-basic variable at the pivot column is the entering variable that will
replace a basic variable. Thus, the non-basic variable which will replace a basic
variable is the one lying in the pivot column.
(b)
Determine the departing variable or variable to be replaced next we proceed to

determine which variable must be removed from the basis to pave way for the
entering variable. This is accomplished by dividing each number in the quality (or
solution values) column by the corresponding number in the pivot column selected
in (a), i.e., we compute the respective ratio b1/a1j, b2/a2j,, bm/amj (only for those aij
s; i = 1,2,,m which are strictly positive). These quotients are written in the last
column labeled minimum ratio of the simplex tableau. The row corresponding to
smallest of these non-negative ratios is called the pivot (or key) row and the
corresponding basic variable will leave the basis. Let the minimum of
(b1/a1j,b2/a2j,,bm/amj;aij>0) be bk/akj, then corresponding variable in the pivot row
sk will be termed as outgoing (or departing) variable in the next tableau to be
16
constructed just after we put an arrow of type to the right of kth row of the
simplex tableau 1.
(c)
Identify the pivot number. The non-zero positive number that lies at the intersection
of the pivot column and pivot row of the given table is called the pivot (or key)
number. We place a circle around this number.
Evaluate (update) the new solution. After identifying the entering and departing variable,
all that remains is to find the new basic feasible solution by constructing a new simplex
tableau from the current one by involving the following steps:
(a)
Compute new values for the pivot row by simply dividing every element of the pivot
row by the pivot number.
(b)
Compute new values for each remaining rows by using the following formula:
New row numbers = Number in old rows

Corresponding number above or
below pivot number
Corresponding number in the

row replaced in (a)
The new row values of the elements in the remaining rows for the new simplex
tableau can also be obtained by performing elementary row operations on all rows
so that all elements except the pivot element in the pivot column are zero.
17
(i) Identify the pivot element, which is found at the intersection of the column
of the entering variable and the row of he leaving variable. Circle this
element.
(ii) Divide the pivot row, element by element, by the pivot element. Enter this
new row in the next tableau in the same row position.
(iii) Reduce all other elements in the pivot column in the next tableau to zero
by multiplying the new row formed in Step 2 by the negative of the rows
element in the pivot column of the present tableau and adding this
transitional row to the row being modified.
(c)
New entries in the Cb column are entered in the new table of the current solution.
(d)
Test for optimality. Compute the Zj and index rows as previously demonstrated in
the initial simplex tableau. If all numbers in the index row are either zero or
negative, an optimal solution has been attained i.e., there is no variable which can
be introduced in the solution to cause the objective function value to increase.
Revise the solution. If any of the numbers in the index (or Cj Zj) row are positive, repeat
the entire Steps 5 & 6 again until an optimal solution has been obtained
Economic interpretation of the Optimal Simplex Solution. The simplex method provides
more than just the optimal solution. It provides additional information which can be useful
for managerial decision making. Following economic interpretation can be made for
various terms involved in the optimal or final simplex tableau.
18
(i)
Values of the variables appearing in product mix (or basic variables) column are given in
the quality (or solution values) column against them. All variables which do not appear in
the product mix column are assumed to have zero value. In the case of the slack variables,
If some of them appear in the solution, it means there is some unutilized capacity/resource,
otherwise there is no unused capacity/resource.
(ii)
The current solution column gives the value of the objective function and indicates how
much improvement (positive or negative) has taken place in it.
(iii)
Numbers aij in the coefficient matrix indicates the marginal rate of exchange between the
variables in the row and column.
(iv)
Numbers under the slack variables in index row are known as the shadow prices or
accounting prices. Thus a positive (or negative) number in the index row indicates an
algebraic reduction (or increment) in the objective function if one unit of the variable at the
head of that column, were introduced in the basis (solution). An existence of slack variable
in the index row of final simplex tableau indicates that the resource has not been fully
utilized. Non-existence of slack variables indicates full utilization of the existing resources,
e.g., if the manufacturer plans to enlarge resources, it can look for only those resources
which are fully utilized. To assess the value of additional resources, the manufacturer may
consider what difference it would make if he provides an extra unit of time of each of the
resources fully utilized. The increase in profit as a result of the additional unit of resource
is known to be the marginal value of the resource and is referred as the shadow price for
that resource.
If under any column of he body matrix at the optimal solution, Cj-Zj element is 0 then it is
an indication of the existence of alternative optimal solution(s)
Example 3.1.
XYZ from manufactures and sells two products Alpha and Beta Each unit of Alpha requires
1 hour of machining and 2 hours of skilled labour, whereas each unit of Beta uses 2 hours
19
of machining and 1 hour of labour. For the coming month the machine capacity is limited
to 720 machine-hours and the skilled labour is limited to 780 hours. Not more than 320
units of Alpha can be sold in the market during a month.
(i)
Develop a suitable model that will enable determination of the optimal product-mix
(ii)
Determine the optimal product-mix and the maximum contribution. Unit

contribution from Alpha is Rs. 6 and from Beta is Rs. 4.
(iii)
What will be the incremental contribution per unit of machine-hour, per unit of
labour, per unit of alpha saleable?
Solution. STEPS
1.
Formulation of suitable LP Model.

Let x1 and x2 denote the number of units to be manufactured of the two products Alpha and
Beta respectively. The problem is to determine the optimal number of units of the two
products in order to maximize total contribution. The complete formulation of LP model
can be stated as follows:
Maximize Z = 6x1+ 4x 2
Subject t the constraints
x1 + 2x2 720 (Machine time constraints)
2x1+ x2 780 (labour time constraint)
x1
2.
320 (marketing constraint)
Converting the Constraints to Equations.
20
The next step is to convert every inequality constraint in the LP problem into an equality
constraint so that the problem can be written in a standard form. This can be accomplished
by adding a slack variable to each constraint. Each slack variable corresponds to the amount
of unused capacity (or resources) for the constraint to which it is added. The symbol s is
generally used to represent the slack variables. Slack variables are always added to the less
than type of constraint to make it an equality. These slack variables must be non-negative,
otherwise, the capacity utilized will exceed the total available capacity. The constraints for
the given problem can now be rewritten with slack variables to form the equalities as given
below:
x1 + 2x2 + s1
= 720
2x1 + x2 + s2 = 780
x1 + s3
= 320
x1 0, x20, s1 0, s2 0, s3 0
Since slack variables represent unused resources, their contribution in the objective
function is zero. Including these slack variables in objective function, we get Maximize Z
= 6x1 + 4x2 + 0s1 + 0s2 + 0s3
3.
Setup the Initial Solution.

The logic of the simple method is based on the fact that only the corner points of the feasible
solution region can give unique optimal solution. The search starts with a solution at the
origin indicating nothing can be produced and therefore the values of decision variables
are zero, i.e., x1 = 0 and x2 = 0. When we are not producing any thing, obviously we are
left with unused capacity of s1 = 720, s2 = 780 and s3 =320. Please note that the current
solution has three variables (slack variables s1, s2 and s3) with non-zero solution values and
two variables (decision variables x1 and x2) with zero values. Variables with non-zero
solution values are called basic variables. Variables with zero values are called non-basic
21
variable. It may be observed that there will always be the same number of basic variables
as there are the number of constraints, provided he constraints are not redundant and that a
basic feasible solution exists. Solutions with basic variables are called basic solutions. The
basic solutions can further be divided into two categories: feasible and infeasible. The
basic feasible solutions are those that satisfy all the constraints. The simplex procedure
searches for basic feasible solutions only at the corner points of the feasible solution region.
4.
Develop Initial Simplex Tableau

The initial decision can easily be summarized in a tabular form known as simplex Tableau
(or Simplex Matrix). An explanation of its parts and how it is derived is given below:
(i)
In the column labeled Profit per unit are listed the profit coefficients of the basic
variables that are included in the specific program. Thus, the profit coefficients of
s1, s2, and s3 are all zero. The column title Cb stands for profit or cost coefficients
of the basic variables.
(ii)
In the column labeled Product Mix are listed the variables that are included in the
solution (products being produced). These are the basic variables. Thus, in our first
program, we are producing only s1, s2, and s3.
(iii)
In the column labeled Quantity are listed the values of the basic variables
included in the solution (quantities of the products being produced in the
programme). Since our initial program consists of producing 720 units of s1 780
units of s2 and 320 units of s3, these values are listed in the Quantity column. Any
variables that are not listed under the Product Mix column are the non-basic
variables. Their values are, by definition, zero hence, in view of the initial
programme x1 and x2 are the non-basic variables, and each has a value of zero.
22
C1 column shows objective coefficients corresponding to basic variables in the

program
Cj row lists, above each variable, the respective objective coefficient
Profit per
unit Cb
Product Mix
(Basic
Variables)
s1
s2
Solution
Values
(Quantity)
x1 x2 s1 s2 s3
720
780
320
This column
shows the
basic
variables
This column
shows the value
of the basic
variables; the
value of each
non-basic
variable is zero.
Zj
Each simplex
tableau contains
an identity matrix
under the basic
variables.
The numbers
under the nonbasic variables
represent
substitution
ratios.
Net Evaluation (or Index) Row (Cj-Zj) 6

0 0
The number in the Zj row

under each column variable
gives the total gross
amount of outgoing profit
when we consider the
exchange between one unit
of the column variable and
the basic variables.
The number in the net evaluation row, under each

column represent the opportunity cost of not
having one unit of the respective column
variables in the solution, in other words, the
numbers represent the potential improvement in
the objective function that will result by
introducing into the programme one unit of the
respective column variable.
23
(iv)
The total profit contribution resulting from a specific program can be calculated by
multiplying corresponding entries in the Profit per unit column and the
Quantity column and adding the products. Thus, total profit contribution in our
first program is zero, since 720(0) + 780(0) +320(0) = 0.
(v)
Numbers in the main body (entries under the columns x1 and x2) can be interpreted
to mean physical ratios of substitution if the programme consists only of the sack
variables. These physical ratios of substitution in the above table correspond
exactly to the given technical specifications. For example, the number 1 gives the
ratio of substitution between x1 and s1. In other words, if we wish to produce 1 unit
of x1, 1 unit of s1 must be sacrificed. The numbers 2 and 1 have similar
interpretations. By the same token to produce 1 unit of x2 we must sacrifice 2 units
of s1, 1 unit of s2, and no unit of s3.
(vi)
Like the numbers in the main body, the entries in the identity matrix columns, s1,
s2 and s3 in the above table can be interpreted as ratios of exchange. Thus, the
numbers in column s1 represent, respectively, the ratios of exchange between s1 and
the basic variables s1, s2 and s3.
(vii)
The Cj numbers at the top of the columns of all the variables represent the
coefficients of the respective variables in the objective function.
(viii)
Zj and Cj Zj (index or Net evaluation row). We may complete the initial simplex
tableau by adding two final rows. These last two rows provide us with important
economic information, including the total profit and the answer as to whether the
current solution is optimal.
(a)
The numbers in the Zj row, under each variable, give the total gross amount
of outgoing profit when we consider the exchange between one unit of
column variable and the basic variables.
(b)
The numbers in the net evaluation row, Cj Zj, give the net effect of
exchange between one unit of each variable and basic variables. They are
24
always zero under the basic variables and under the non-basic variables,
they can be positive, or zero
The numbers in the Zj row under each variable column represents the total
contribution of outgoing profit when one unit of a non-basic variable is introduced
into the basis in place of a basic variable. Zj values for various variable columns are
computed by multiplying the coefficients of basic variables in the CB column with
coefficients (aij) in each variable column and then ad up the products so obtained.
For example, Zj value for the x1-column can be computed as follows:
Zj = 0 (Cj of s1) x 1 (i.e, coefficient of x1 in s1 row, or a11)

+ 0 (Cj of s2) x 2 (i.e., coefficient of x1 in s2 row, or a21)
+ 0 (Cj of s3) x 1 (i.e., coefficient of x1 in s3 row, or a31)
=0x1+0x2+0x1=0
Thus following the same procedure, Zj for all other variable columns can be
computed as shown in the Table 3.2. The numbers in Cj Zj (i.e., index or net
evaluation) row represents the net profit (or the profit gained minus the profit given
up) that will result from introducing 1 unit of each product or variable into the
solution and can be computed by simply subtracting the Zj total for each column
from the Cj value at the very top of that variables column. For example, Cj Zj
number in the x1-column will be C1-Z1 = 6 0 = 6, and so on.
Remarks.
25
It may be noted that the values of the entries in the Cj Zj row are always zero under the
basic-variables columns
The value of the objective function in the current solution is obtained by multiplying the
elements in the CB column with the corresponding elements in the xB-column and then
adding these products, i.e., Z = 6 x 0 + 4 x 0 = 0
TABLE 3.2:
FIRST SIMPLEX TABLEAUS COMPLETED
Cj
x1
x2
s1
s2
s3
Basic
Solution
variables
Values
b (= xB)
s1
720
s2
780
s3
320
Zj
Net Evaluation (or Index) Row: Cj Zj
CB
Remarks.
By examining the numbers in the Cj Zj row of Table 3.2, we find that total profit can be
increased by Rs. 6 for each unit of x1 added to the solution mix or by Rs. 4 for each unit of
x2 added to the solution mix. Thus, a positive number in the Cj Zj row indicates that
profits can be improved by that amount per unit of x1 added (On the other hand, a negative
number in the Cj-Zj row would indicate the amount by which profits would decrease if one
26
unit of the variable heading that column were added to the solution). Hence the optimal
solution is reached when no positive numbers are left in Cj Zj row.
Tests for Optimality

After the initial simplex tableau is set up, the next step is to determine whether any
improvement is possible. The computational procedure is as follows:
(a)
Choosing the entering variable. For deciding which of the variables will enter the
solution next (it must be either x1 or x2, since they are the only two non-basic
variables at this point), we select the one with the largest positive Cj Zj element.
Variable x1 has a Cj Zj value of Rs. 6 implying that each unit of x1, added into the
solution mix will contribute Rs. 6 to the overall profit. Variable x 2 has a value of
only Rs. 4. The other two variables s1 and s2 have zero values and can add nothing
more to profit. Hence, we select x1 as the variable to enter the solution mix, and
identify its column (with an arrow) as the pivot (or key) column.
(b)
Choosing the departing variable. Since we have chosen a variable to enter the
solution mix, we have also to decide which variable is to be replaced. This is done
in the following manner;
First, divide each number in the quantity column, i.e., 720, 780 and 320 by the
corresponding numbers in the pivot column, i.e., 1,2 and 1.
Secondly, select the row with the smallest non-negative ratio as the row to be
replaced. Here the ratios would be:
s1 row : 720 hrs/1 hr per unit = 720 units of x1

27
The row with the minimum positive ratio represents the variable to depart from the solution
basis. Thus s3 is the departing variable and the row corresponding to the departing variable
is called pivot (or replaced or key) row.
The number at the intersection of pivot row and pivot column is referred to as the pivot (or
key number) which is 1 in the present case.
TABLE 3.3: FIRST SIMPLEX TABLEAU CONTAINING PIVOT COLUMN, PIVOT

ROW AND PIVOT NUMBER
Cj
CB
Basic
Solution
variables
Values
b (= xB)
x1
x2
s1
s2
s3
Min
Ratio
xB/x1
s1
720
720
s2
780
390
s3
320
1*
320
Zj
Net evaluation (or index) row: Cj Zj
Pivot column
Pivot number
Developing Second Simplex Tableau.

28
In order to obtain the next solution, let us refer to table 3.3 and follow the following steps:
(a)
Compute new values for the pivot row. To revise the pivot row, divide all values in
the pivot row (s3) by the value of the pivot element (i.e., 1) and replace departing
variable (s3) by the entering variable (x1). Also replace the new values in CB column
accordingly. Put all other values so obtained at the appropriate places.
(b)
Compute new values (derived numbers) for each remaining row. To complete the
second tableau, we compute new values for the remaining row as follows:
New roe number
= Old row number [Corresponding number] x [Corresponding]
in pivot row
where fixed ratio =
fixed ratio
Old row number in pivot column

Pivot number
Based upon the above formula, the values in Simplex Tableau 3.4 for the new s1 and s2
rows are:
Row s1:
720 320 x 1 = 400
Row s2:
780 2 x 320 = 140
1 1 x1 = 0
2 2 x1 = 0
20x1=2
1 1 x 0 =1
10x1=1
02x0=0
00x1=0
12x0=1
0 1 x 1 = -1
0 2 x 1 = -2
Remark.
29
The new solution can also be obtained by performing a set of elementary row operations
in the Simplex Tableau 3.3 so as to reduce the pivot number to unity with all other elements
in the pivot column zero. In the present case, we perform the following set of elementary
row operations in the Simplex Tableau 3.3.
(i) R3 (new) R3 (old), (ii) R1 (new) R1 (old) 1. R3 (new), and (iii) R2 (new) R2
(old) 2. R3 (new)
The values of Cj and Cj Zj rows are calculated in the same way as discussed earlier. The
value of the objective function is calculated by substituting the values of the variables in
the objective function. For example, in this improved solution:
The new revised improved solution is shown in Table 3.4 below:
TABLE 3.4: SECOND SIMPLEX TABLEAU (Non-optimal Solution)

Cj
0
Basic Variabl e
CB
Ratio
xB/x2
Solution
Values
b (= xB)
Min.
x1
x2
s1
s2
s3
30
s1
400
s2
140
x1
320
-1
0
1*
140/1
0
-2
1
400/2
1
Zj
0
6
Net evaluation (or index) Row: Cj Zj

0
4
-6
We find that the value of objective function has been improved from 0 to 6. However, since
there is a positive shadow price, the current solution is not optimal. Clearly x 2 must enter
the basis. Further, since min {400/2, 140/1} = 70 corresponds to s2-row, we choose variable
s2 to leave the basis. Thus x2 is the pivot column and s2 represent the pivot row.
Applying the following elementary row operations:

(i) R2 (new) R2 (old), and (ii) R1 (new) R1 (old) 2 R2 (new), the following third
simplex tableau is obtained.
TABLE 3.5: THIRD SIMPLEX TABLEAU (Non-optimal Solution)
31
Cj
0
Basic Variabl e
B
CB
xB/x2
x1
s1
400
s2
140
x1
320
x2
s1
s2
-2
s3
b (= xB)
0
Ratio
Solution
Values
Min.
0
3*
-4
-2
1
120/3
320/1
1
Zj
4
-2

0
0
2
As the next index row of third simplex tableau still has a positive entry, the solution
contained in third tableau is still not an optimal one. Thus we must revise this programme
and derive fourth simplex tableau. The procedure for deriving fourth tableau is exactly the
same as was followed in deriving third tableau.
Repeating the procedure followed earlier. We notice that variable s3 will enter into the
solution and variable s1 will depart. The pivot number is 3 and using the elementary row
operations viz.,
32
(i) R1 (new) R1 (old), (ii) R2 (new) R2 (old) (-2) R1 (new), and

(ii) R3 (new) R3 (old) R1 (new), the next improved solution is given below:
TABLE 3.6: FOURTH SIMPLEX TABLEAU (Optimal Solution)

Cj
x2
s1
s2
0
Basic Variabl e
Solution
CB
Values
b (= xB)
s1
40
s2
220
x1
280
x1
s3
0
1
0
0
1
0
Zj
2,560
0
0
83
Since all entries in Cj Zj row of fourth simplex tableau are either zero or negative, optimal
solution has been obtained, and the maximum value of Z is Rs. 2,560 which occurs when
33
x1 = 280 units, x2 = 220 units and s3 = 40 units (deficit to demand). Incremental contribution
is given by the entry numbers in the net evaluation row in the optimal simplex tableau.
Thus for s1 (machine hours) =

and s2 (labour) = Rs.
Rs.
8
per
hour
per hour
Remarks:
1.
Since it is always possible to make an arithmetical error when one is going through
the numerous simplex steps and iterations. It is always advisable to verify the final
solution. This can be done as follows:
x1+2x2 720
First constraint:
280 + 2(220) 720
720 720
2(280) + 220 780
or
780 780
x1 320
or
280 320
2x1 + x2 780
Second constraint:
Third constraint:
Objective Function:
or
Contribution = 6x1 + 4x2

= 6(280) + 4(220) = Rs. 2,560
2.
Interpretation of the Final Simplex Tableau. The simplex tableau helps to predict
the effect of changes in the input factors (resources) and the profit margin without
drawing the table afresh.
(a)
Opportunity cost. The Zj indicate the opportunity cost. If we do not utilize

one unit of x1, the loss of profit is Rs 6 and non-utilization of one unit x2
cost Rs.4.
34
(b)
Shadow cost or price. In our previous solution, row Zj gives: 2560 = 6x1 +
4x2 + s1 +
s2
For maximum value of Z, we put s1 = 0 and so that Z = 2,560. The coefficient of non-basic
variables, i.e., of s1 and s2 is called shadow cost or price. They represent the decrease in
the optimal value of the objective function resulting from a unit increase in a non-basic
variable
Example 3.2. Following data are available for a firm which manufactures three items A,
B and C:
Product
A
B
Time Required (In Hours)
Profit
Assembly
Finishing
10
800
600
300
Firms capacity
2,000
1,009
(i) Express the above data in the form of linear programming problem to maximize the
profit from the production, (ii) Solve it by simplex method.
Solution. The appropriate mathematical formulation of the problem is:
Maximize Z = 800 x1 600 x2 + 300 x3

Subject to the constrains
10x1 + 4x2 + 5x3 2,000
2x1 + 5x2 + 4x3 1,009
35
x1 0, x2 0, x3 0
where x1, x2 and x3 denote number of units of products A, B and C respectively. Introducing
non-negative slack variables s1 0, s2 0, the given LP problem in standard form can be
stated as follows:
Maximize Z = 80x1 + 60x2 + 0s2
10x1 + 4x2 + 5x3 + s1 = 2,000; 2x1 + 5x2 4x3 + s2 = 1,009
x1 0, x2 0, x3 = 0 and s1 0, s2 0
An initial basic feasible solution is:
x1 = x2 = x3 = 0 and s1 = 2,000, s2 = 1,009
Starting with this solution, the various computations involved in the algorithm are shown
below:
TABLE 3.7
FIRST SIMPLEX TABLEAUS WITH PIVOT ROW, PIVOT COLUMN

AND PIVOT NUMBER (Non-optimal Solution)
Cj
800
600
300
0
Min
Basic
Solution
Variables
Values
b (= xB)
s1
2,000
200
s2
1,009
1,009/2
800
600
300
CB
Zj
x1
Net Evaluation (or Index) Row Cj Zj
x2
x3
s1
s2
Ratio
xB/ x2
36
A look at the Cj Zj row reveals that x1 is the entering variable. The smallest non-negative
quotient in the ratio column is 200, so s1 s the departing variable and the pivot number, 10
is circled. Using following elementary row operations, viz.,
1 R1 (old), and (ii) R2 (new) R2 (old) 2 R1 (new)

(i) R1 (new) 10
The new solution is shown below in Table 3.8.
TABLE 3.8
CB
800
SECOND SIMPLEX TABLEAU (Non-optimal Solution)

Cj
800
600
300
Basic
Solution
x1
x2
x3
s1
s2
Variables
Values
Ratio
b (= xB)
xB/ x2
x1
200
2
5
1
2
1
10
Min
500
145
s2
609
Zj
1,60,000
0
800
0
2
1
5
350
280
- 15
400
80
-100
-80
It may be noted that the value of the objective function has been improved from 0 to
1,60,000. However, there is a positive entry in the Cj Zj row, hence the current solution
is not optimal one. The entering variable is now x2. The smallest non-negative quotient in
the ratio column is 145, thereby indicating that s2 is the departing variable and 21/5 is the
pivot number. Using now the elementary row operations, viz.,
(i) R2(new) 5 R2(old), and (ii) R1(new) R1(old) R2(new), the new solution
37
is shown below in table 3.9
TABLE 3.9: THIRD SIMPLEX TABLEAU (Optimal Solution)

Cj
800
600
300
x1
x2
x3
s1
s2
Basic
Solution
Variables
Values
b (= xB)
800
x1
142
3
14
5
42
600
x2
145
5
7
- 211
5
21
800
600
600
200
3
200
3
-300
- 200
3
- 200
3
CB
Zj
2,00,600
- 212
Since al entries in the Cj Zj row of third simplex tableau are zero or negative, optimal
solution has been obtained, and the maximum value of Z is 2,00,600 which occurs when
x1 = 142, x2 = 145, and x3 = 0.
Example 3.3. A manufacturer produces four products A, B, C and d, each of which is

processed on three machines X, Y and Z. the time required to manufacture one of each of
the four products and the capacity of each of the three machines are indicated in the
following tables:
Processing Time (in hrs.)
38
Product
Machine X
Machine Y
Machine Z
1.5
Capacity (hrs)
550
700
200
The profit contribution per unit of the four products A, B, C and D is Rs. 4, 6, 3 and 1
respectively. The manufacturer wants to determine its optimal product-mix:
(a)
Formulate the above as a linear programming problem.
(b)
Solve it with the simplex method.
(c)
Find out the optimal product-mix and the total maximum profit contribution.
(d)
Which constraints are binding?
(e)
Which machine(s) has (have) excess capacity available? How much?
(f)
If the profit contribution from product B increases by Rs. 2 per unit, will the optimal
product mix change?
(g)
What are the shadow prices of the machine hours on the three machines?
(h)
If machine A is to be shut down for 50 hours de to repairs, what will be the effect
on profits?
(i)
If the company wishes to expand the production capacity, which of the three
machines should be given priority?
(j)
If a customer is prepared to pay higher prices for product x1, how much should the
price be increased so that the companys profit remains unchanged?
Solution.
39
(a)
Let x1, x2, x3 and x4 represent the number of units of products A, B, C and D
respectively. Then the appropriate mathematical formulation of the problem as LP
model would be as follows:
Maximize (total profit) Z = 4x1 + 6x2 + 3x3 + x4

1.5x1 + 2x2
+ 4x3 +3x4
550
4x1 + x2
+ 2x3 + x4
700
2x1 + 3x2
+ x3
+ 2x4 200
x1, x2, x3 x4
(b)
Introducing slack variables, the augmented problem may be written as:

Maximize (total profit) Z = 4x1 + 6x2 + 3x3 + x4 0s1 0s2 + 0s3
1.5x1 + 2x2
+ 4x3 +3x4
550
4x1 + x2
+ 2x3 + x4
700
2x1 + 3x2
+ x3
+ 2x4 200
x1, x2, x3 x4, s1, s2, s3 0
An initial feasible solution is obtained by setting:

x1 = x2 = x3 = x4 = 0 so that s1 = 550, s2 = 700, s3 = 200 and max, Z = 0.
40
TABLE 3.10: FIRST SIMPLEX TABLEAU (N0n-optimal Solution)
Basic Variabl e
B
CB
Cj
Solution
x1
x2
x3
x4
s1
s2
s3 Min
Ratio
Values
xB/x2
b(= xB)
0
s1
550
1.5
0 275
s2
700
0 700
200/3
s1
Zj
200
0 Outgoing
Net Evaluation (or index) Row: Cj Zj
Variable
Incoming Variable
Applying the following row operations to get a new solution by entering variable x 3 into
the basis and removing s1 from the basis,
(i) R1 (new)
1
3
R3 (old), (ii) R1 (new) = R1 (old) 2 R3 (new), and
(iii) R2 (new) = R2 (old) R3 (new)

The new solution is shown below in table 3.11.
41
TABLE 3.11: SECOND SIMPLE TABLEAU (Non-optimal Solution)
Basic Variabl e
B
CB
Cj
Solution
x1
x2
x3
x4
s1
s2
s3 Min
Ratio
Values
xB/x2
b(= xB)
0
s1
1250
3
1
3
1
0
5
3
- 125
2
3
s2
380
1900
3
10
3
x2
5
3
1
3
1
3
200
3
200
Zj
400
2
3
1
3
2
3
1
3
-3
Applying the following row operations to get a new solution by entering variable x 3 into
the basis and removing s1 from the basis,
(i) R1 (new)
3
10
R1 (old), (ii) R2 (new) R2 (old) - 53 R1 (new), and
(ii) R3(new) R3 (old) - 13 R1 (new)

42
This solution is shown in table 3.12.
TABLE 3.12 THIRD SIMPLEX TABLEAU (Optimal Solution)
Basic Variable
B
CB
Cj
Solution
x1
x2
x3
x4
s1
s2
s3
1
10
1
2
3
10
- 15
19
6
- 12
- 12
19
30
3
6
- 101
6
15
123
30
9
2
3
10
9
5
- 101
- 92
- 103
- 95
Values
b(= xB)
x3
125
s2
425
x2
Zj
25
525
Since all the numbers in the Cj Zj row in Table 3.12 are either zero or negative for nonbasic variables, the current solution cannot be improved further and the optimal solution is
obtained.
(c)
The optimal product mix is: x2 = 25 units of product B and x3 = 125 units of product C
to obtain the maximum profit contribution of Rs.525.
(d)
Since s2 = 425, machine Y has excess capacity available of 425 hours.

43
(e)
No, the product mix will not change but the profit will change. New profit will be: 25
x 3 + 3 x 125 or p.s. 575.
(f)
Shadow prices (in hrs.) on: Machine A =
3
10
, Machine B = 0, Machine C =
9
5
respectively. These are the maximum prices one would be prepared to pay for another
hour of capacity for these three machines.
Since the shadow price of hours on machine A is Rs. 103 , the reduction in profit of a 50
(g)
hours shut down =
3
10
x 50 = Rs. 15.
(h)
Machine Z, because shadow price of this machine is maximum.
(i)
The Cj Zj row entry in the final simplex tableau under the non-basic variable x1
indicates that if the price of x1 is increased beyond
1
10
, then Cj Zj become positive and
hence x1 will enter the basic solution. Thus the current solution may not remain optimal.
Hence in order to ensure that companys profit remains unchanged, price of x1 should
be increased at the most by Rs.
1
10
CASE 2: Minimization Case (All constraints of the type ). In the previous case, we have
discussed the problem of maximization of an objective function (e.g., profit, volume of
production, etc) and the constraints were of the type . There may be situations where
the constraints involved may be of the type or = signs and the objective function
may be of minimization (e.g., cost, time, raw material, etc.). In such a case, the simplex
method needs some modifications as discussed below.
STEPS:
1
Formulate the appropriate mathematical model of the given linear programming problem
Minimize Z = c1x1 + c2x2 ++cnxn
a11x1 + a12x2 ++ a1nxn b1
44
a21x1+ a22x2 + + a2nxn b2
am1x1 + am2x2 ++ amnxn bm

x1, x2, xn 0
To convert inequalities into equations, we subtract surplus variables and the above problem
reduces to the form:
Minimize Z = c1x1 + c2x2 ++cnxn + 0s1 ++0sn
a11x1 + a12x2 ++ a1nxn s1 = b1
a21x1+ a22x2 + + a2nxn s2 = b2
and
am1x1 + am2x2 ++ amn xn sm = bm

x1 0 (i = 1, 2,, n) ; sj 0 (j = 1, 2,, m)
An initial basic solution is obtained by setting: x1= x2 = = xn = 0. Thus, we get
s1 = b1 or s1 = b1
s2 = b2 or s2 = b2
sm = bm or sm = bm
Which is not feasible because it violates the non-negative restrictions (i.e., sj 0).
Therefore slight modifications are required in the Simplex Algorithm. Introducing now
into the system of constraints (**), m new variables A1, A2,Am known as artificial
variables one to each equation. The resulting system of equations can now be written as
follows:
45
a11x1 + a12x2 ++ a1nxn s1 + A1 = b1

a21x1+ a22x2 + + a2nxn s2 + A2 = b2
am1x1 + am2x2 ++ amnxn sm + Am = bm

where x1 0; (i = 1, 2,, n) and sj 0; Aj 0; (j = 1, 2,, m)
Thus the standard linear programming problem has reduced to a system of m equations in
n + m + m (n decision variables + m surplus variable +m artificial variables). An initial
basic feasible solution can obtained by setting (m + 2m m) variables equal to zero, which
is given by: A1 = b1, A2 = b2,, Am = bm.
This, however, does not constitute a solution to the original system of equations because
two systems of equations are not equivalent. Therefore, to drive the artificial variables out
of solution, a vary to large value (M) is assigned to each of the artificial variables and a
zero value to each of the surplus variables as the coefficient value in the objective function.
Therefore, the problem can now be rewritten as follows:
Minimize Z = c1x1 + c2x2 ++ cnxn + 0s1 + 0s2++0sm + MA1 + MA2 ++M Am
a11x1 + a12x2 ++ a1nxn s1 + A1 = b1
a21x1+ a22x2 + + a2nxn s2 + A2 = b2
am1x1 + am2 x2 ++ amn xn sm + Am = bm

and
x1 0 (i = 1, 2,, n), sj 0 (j = 1, 2,, m).
46
The modified simplex method of solving an L.P. problem, when a high penalty cost (or
profit) M has been assigned to the artificial variables is sometimes known as the Big M
method or Penalty Method.
Remarks
1
The artificial variables are fictitious and are introduced only for computation
purposes and cannot have any physical meaning or economic significance.
By assigning a very large per unit penalty to each of the artificial variables in the
objective function, these variables can be removed from the simplex table as soon
as
they
become
non-basics.
Such
penalty
is
designated
as
M for maximization problems and +M for minimization problems, where M 0.

3
The constraints with a inequality sign require both a surplus and an artificial
variable.
If one of the constrain in the problem is strict equality then an artificial variable
has to be added to get the initial solution. It may be noted that an equality constraint
requires a slack variable nor a surplus variable.
No feasible solution exists to the problem if all the variables cannot be driven out
in the optimal big-M simplex table. Infeasibility is due to the presence of
inconsistent constraints in the formulation of LP problem, i.e., resources of the
system are not sufficient to meet the expected demands.
Set up the Initial Simplex Tableau. Just to initiate the solution procedure, the initial basic
feasible solution is obtained by assigning zero value to decision variables. i.e., x1 = x2 ==
47
xn = 0 so that A1 = b1, A2 = b2,, Am = bm. this solution is now summarized in the initial
simplex tableau as shown below:
INITIAL SIMPLEX TABLEAU
Cj
(contribution/
unit)
Basic
00
M M
x1 x2 xn
s1
s2 sm A1 A2 Am
Solution
Va Values
CB
c1 c2 cn
ria
bl
Min.
Ratio
b (= xB)
e
B
cB1
cB2
A1
A2
cBm
a11 a12 a1n -1
b2
a21 a22 a2n
Am
bm
am1 am2 amn
00
0 0
0 -1 0
1 0
0 0 -1
01
0 00
0 0
Net evaluation (or index) row: Cj Zj c1 c2
cn
M M
Zj
b1
00
Tests for Optimality. Compute the elements of Cj Zj (i.e., index) row.

(a)
If all Cj Zj , then the current basic feasible solution is an optimal one.
(b)
If at least one Cj Zj 0, then select the largest negative number in the variable to
the solution basis in the second simplex tableau.
48
Test for Feasibility. Determine the pivot row and pivot number in the same way as
discussed earlier in maximization case.
Remarks
1
Two major differences between maximizing and minimizing should be understood.

One significant difference involves the Cj Zj row. Since our objective is now to
minimize costs, the new variable to enter the solution in each table (the pivot
column) will be the one with the largest negative number in the Cj Zj row. Thus
we will be choosing the variable that decreases costs the most. In minimization
problems, an optimal solution is reached when all numbers in the Cj Zj row are
either zero or positive just the opposite of the maximization case.
The second major difference is that in solving minimization problems which
generally involve greater than or equal to constraints, the artificial variable, if
present, is assigned a positive M value. If a positive cost is used, the algorithm will
not select artificial variables as solution variable.
At any iteration of the simplex method, any one of the following cases may arise:
(a)
If at least one artificial variable is present in the basic feasible solution at

zero level, i.e., value of this artificial variable in solution is zero and in the
index row, the coefficient of M in each number is non-negative, then the
solution of the problem under consideration does not exist, i.e., the current
basic feasible solution is degenerate.
(b)
If at least one artificial variable is present in the basic solution at positive

level but not at zero level, and in the index row, the coefficient of M in each
number in the index row is non-negative, then, the problem under
consideration does not possess any optimal basic feasible solution.
It is to be carefully noted that except the artificial variables others, once driven out
in an iteration, may re-enter, in a subsequent iteration. But, an artificial variable,
once driven, can never re-enter, because of the big M coefficient associated with it
in the objective function. Advantage can be taken of this fact by not computing its
column in iteration subsequent to the one from one which it was driven ou
49
4
START
Introduce necessary slack, surplus and

artificial variables to convert inequalities
into equations
Write the initial Simplex tableau and
calculate the (Cj Zj) elements of the net
evaluation (or index) row
Minimization
Minimization
Is the problem
maximization or
minimization?
Select the most negative

(Cj Zj) number and
designate the column as
pivot column.
Select the largest (Cj Zj)

number and designate the
column as Pivot column.
Divide the coefficient in the Pivot

column into RHS elements b/s. select
the row with smallest non-negative
quotient and call it as Pivot row
Designate the inter-section of Pivot row
and Pivot column as Pivot number.
(i) Divide all elements of the Pivot row by Pivot
element.
(ii) Obtain other rows as follows:
New =
Obtain (Cj Zj) numbers of Index Row
Minimization
NO
Are all (CJ

Zj) elements
in Index row
+ve
Minimization
Is the problem
maximization or
minimization?
YES
YES
The solution is optimal
Are all (CJ Zj)

elements in
Index row -ve
STOP
50
Old row-
Figure 3.1 Schematic Diagram of Simplex Algorithm
Example 3.4
A diet for a sick person must contain at least 4,000 units of vitamins, 50 units of minerals and
1,400 units of calories. Two foods A and B are available at a cost of Rs. 4 and Rs 3 per unit
respectively. If one unit of A contains 200 units of vitamins, 1 unit of mineral and 40 units of
calories and one unit of food B contains 100 units of vitamins, 2 units of minerals and 40 units of
calories, find by simplex method, what combination of food be used to have least cost?
Solution. The problem, formulated as an appropriate LP model based upon the given data, is as
follows:
Minimize (total cost) Z = 4x1 + 3x3
200x1 + 100x2 4,000
x1 + 2x2 50
40x1 + 40x2 1,400
x1, x2 0
where x1 = Number of units of food A
x2 = Number of units of food B
Converting the constraints to equations. Just as we needed a starting point in the maximization
problem, the same holds true for a minimization problem. In the minimization case, we started
51
with and initial solution of no profit. However, in minimization problems we will take an initial
solution with a very high cost, which permit us to search for a lower cost solution. The first step
is once again to convert the inequalities into equalities by subtracting surplus variables S1, S2 and
S3 respectively from the three constraints. The resulting equations are:
200x1 + 100x2 S1 = 4,000

x1 + 2x2 S2 = 50
40x1 + 40x2 S3 = 1,400
The surplus variable S1, S2 and S3 represent the extra units (if any) of vitamins, minerals and
calories over 400 units, 50 units and 1,400 units respectively in the lowest cost mixture. Now if
we let x1 and x2 equal to zero in the initial solution, we will have S1 = -4000, S2 = -40 and S3 = 1,400 which is not possible because surplus variable S1, S2 and S3 cannot be negative. Thus to
prevent S1, S2 and S3 from appearing in the initial solution, we set S1, S2 and S3 equal to zero. If
X1, X2, S1, S2 and S3 are zero in the initial solution then we must introduce, new foods which will
be acceptable substitutes for A and B. For this purpose, we use three artificial variables A1, A2
and A3, which can be thought of as three artificial foods in place of A and B respectively. These
artificial foods can be thought of as very expensive ones, priced at say, M per unit each (M is very
large). The high price of artificial foods will permit us to begin with an initial solution involving
a very high cost and also it will ensure that they will never appear in the final solution, the problem
under consideration is infeasible. It may be noted that the artificial variables is a computation
device which is used for an equality type and for greater than or equal to type constraints. The
constraints can now be written as follows:
200x1 + 100x2 S1 + A1 = 4,000
x1 + 2x2 S2 + A2 = 50
40x1 + 40x2 S3 + A3 = 1,400
52
In the cost function, we will have a zero cost for surplus variables S1, S2 and S3 and high cost M
for the artificial variables A1, A2 and A3.
[B] SOLVING USING LINDO /LINGO SOFTWARE

MARKS problem formulated
The television manufacturing company is in the market to make money-its objective is profit
maximization. The profit realized is Ksh.300 for each set of model VH200 sold and Ksh.250 for
each set of model SB150 sold.
Obviously, the more VH200 sets produced and sold the better. The trouble is that there are certain
limitations which prevent the company from producing and selling thousands of VH200 models.
These limitations are:
a) Only 40 hours of labour time are available per day for production. (Labour constraint).
b) Only 45 hours of machine time are available daily. (Machining constraint).
c) Inability to sell more than 12 sets of model VH200 per day. (Marketing constraint).
Marks problem is to determine how many sets of each model to produce each day so that the total
profit will be as large as possible.
Objective
The objective is to minimize profit.
Decision variables
Let VH = number of sets of model VH200 to be produced daily, and
SB = number of sets of model SB150 to be produced daily.
The objective function

The profit from selling one set of VH200 is Ksh.300. if they produce and sell VH units of
this model; the profit is 300 VH. Similarly, the profit for SB of model SB150 is
250
SB
53
The total profit is therefore 300VH + 250SB. The objective function is given by
Maximize PROFIT = 300VH + 250SB
Constraints on the system

Labour constraint: The production department has only 40 man-hours of labour available
each day to manufacture both models. It is known that each set of model VH200 requires
two hours of labour whereas each set of model SB150 requires only one hour. This
constraint can be expressed as
Demand for labour Available labour
Total hours for VH200 + Total hours for SB150 Total hours available
2VH + SB 40
Note the sign sign. 40hours is the available capacity which does not necessarily have to
be used in full.
Machine constraint: Machine processing time for one set of model VH200 is one hour. VH
units therefore needs 1 VH hours. One set of model SB150 needs three hours. SB units therefore
needs 3 SB hours. There are 45 hours machine times available per day. This constraint can be
expressed as
VH + 3SB 45
Marketing constraint: It is not possible to sell more than 12 sets of model VH200 per day.
VH 12
Sign restrictions: It is impossible to produce a negative number of sets. VH and SB must
be non- negative i.e. zero or positive. This constraint is expressed as:
VH, SB 0
The LP model for Marks problem is:
Maximize PROFIT = 300VH + 250SB
54
Subject to
2VH + SB 40
(Labour time)
VH + 3SB 45
(Machine time)
VH
12
VH, SB 0
(Marketing)
(Non-negativity)
NOTE: Since production continues day after day, it is not necessary to complete all sets at
the end of the day. A fractional number of sets is permissible (e.g. 5, 7). However, had it
been necessary to complete all sets by the end of the day, additional constraints limiting
VH and SB to whole numbers would have been added. Such an addition changes problem
to one of integer programming.
Solution using LINDO/LINGO

Now, we key in the LP model for Marks problem and save under the name Mark:
Max 300VH + 250 SB
Subject to
2VH + SB < 40
VH + 3SB < 45
VH < 12
The constraints can also be named (at most 8 digits), for example:
55
Max 300VH + 250 SB

Subject to
Labour) 2VH + SB < 40
Machine) VH + 3SB < 45
Market) VH < 12
In this case the solution can easily be interpreted.
By choosing Tableau from on the Reports-menu, the initial tableau appears in the Reports
Window.
THE TABLEAU
ROW
(BASIS)
VH
-300.000
SB
ART
SLK
2.000
1.000
SLK
1.000
SLK
1.000
ART
ART
-300.000
-250.000
SLK 2 SLK
0.000
0.000
0.000
1.000
0.000
0.000
40.000
3.000
0.000
1.000
0.000
45.000
0.000
0.000
0.000
1.000
12.000
-250.000
0.000
3 SLK
0.000
0.000
0.000
0.000
The objective function coefficients are given in row 1. The first constraint with slack variable
SLK2, is given in row 2, the second constraint with slack variables is given in row 3 etc.
The initial basis consists of SLK2, SLK3 and SLK4. (In our notation S1, S2 and S3.)
56
The values of the basic variables are listed in the right-hand column: SLK2=40, SLK3=45 and
SLK4=12.
Solving the model, we obtain:
LP OPTIMUM FOUND AT STEP
OBJECTIVE FUNCTION VALUE

1)
6350.000
VARIABLE
VALUE
REDUCED COST
VH
12.000000
0.000000
SB
11.000000
0.000000
ROW SLACK OR SURPLUS

2)
5.000000
0.000000
3)
0.000000
83.333336
4)
0.000000
216.666672
NO. ITERATIONS=
DUAL PRICES
The optimal solution is: VH = 12, SB = 11 and PROFIT= 6 350, that is to produce 12 sets of model
VH200 and 11 sets of model SB150 for a profit of Ksh.6350.
The values under the heading SLACK OR SURPLUS indicates whether requirements have been
met and whether resources are fully utilized. In this case constraint 1 (row 2) has a slack of 5 units
which indicates that 5 units of labour time are not used.
Constraints 2 and 3 (rows 3 and 4) have no surplus or slack, thus both binding.
Choosing Tableau from the report-menu again, we obtain the optimal tableau.
57
THE TABLEAU
ROW (BASIS)
VH
SB
SLK
0.000
0.000
0.000
83.333
216.667
0.000
0.000
1.000
-0.333
-1.667
5.000
SB
0.000
1.000
0.000
0.333
-0.333
11.000
VH
1.000
0.000
0.000
0.000
1.000
12.000
1 ART
2 SLK
2 SLK
3 SLK 4
6350.000
From the tableau we see that SKL2 (SI, SB and VH) forms the basis.
Exercises
Solve the following using LINGO/LINDO
1. Maximize z = 5x1 + 4x2
Subject to
6x1 + 10x2 90 (C1)
12x1 + 6x2 120
(C2)
X1,X2 0.
2. Minimise z = x1 x2-3x3- 5x4
Subject to
3x1 4x2 + x3 x4 2 (C1)
58
5x2 5x3 -2x4 8
(C2)
X1 x2 + 2x3 + x4 7
(C3)
X1 ,x2, x3, x4 0.
SOLUTION TO AN AUGMENTED FORM OF LP MODEL
(ARTIFICIAL)
Create an initial feasible solution
Use LINDO/LINGO to solve LP models with , and = constraints.
Up to now we have solved LP models with constraints. Slack variables were used to balance the
inequalities and they provided us with a basis (the initial solution) to start the simplex method
with.
1.2.3 Christines problem formulated.
In preparing sun gold paint ,it is required that the paint has a brilliance rating of bat least 300
degrees and a hue level of at least 250 degrees. Brilliance and hue levels are determined by the
two ingredients Alpha and Beta. Each gram of Alpha produces one degree of brilliance in a tin of
paint. Likewise for Beta. However the hue is controlled entirely by the amount of Alpha one
gram of it producing three degrees of hue in one tin paint. The cost of Alpha is 45 cents per gram
and the cost of Beta is 12 cents per gram. Assuming that the objective is to minimize the cost of
the ingredients, the problem is to find the quantity of Alpha and Beta to be included in the
preparation of each tin of paint. An Optimal answer for one will remain optimal for any number
of tins as long as the relationships are linear. The total quantity of paint to be produced is of
course more than one tin and it is determined mainly by the demand and the manufacturing
technology formulation.
Objective
The objective is to minimize the total cost of the ingredients.
Decision Variables
Let ALPHA=quantity (in grams) of Alpha in each tin of paint,

BETA=quantity (in grams) of Beta in each tin of paint.
Objective function
59
Since the cost of Alpha is 45 cents per gram and since ALPHA grams are going to be used
each tin, the cost per tin is 45 x ALPHA. Similarly for Beta, the cost is 12xBETA.The cost is
45ALPHA +12BETA, and the objective function is given by:
Minimize COST=45ALPHA +12 BETA.
Constraints
Brilliance: A brilliance rating of at least 300 degrees per tin must be provided. Each gram
of Alpha or Beta increases the brightness by one degree, therefore the following
relationship exists:
Brilliance Brilliance required
Brilliance supplied by Alpha +Brilliance supplied by Beta Brilliance required
1 x AlPHA +1 x BETA 300
Hue: A hue level of at least 250 degrees must be provided.

Hue supplied
Hue required
Hue supplied by Alpha +Hue supplied by Beta Hue required

3xALPHA+0xBETA
250
The LP model for Christines problem is:

Minimize COST =45 ALPHA +12 BETA subject to
ALPHA+BETA 300 (Brilliance)
3ALPHA
250
ALPHA, BETA
(Hue)
60
The optimal solution is:

X1
=2, 5
X2
=2, 5
X3
=2, 5
With maximum Z of 15.
Christine must find the combination of the new ingredients, Alpha and Beta that will result at a
lower cost. An LP model for her problem was formulated as follows:
Let ALPHA = quantity (in grams) of Alpha in each tin of plant, and
BETA = quantity (in grams) of Beta in each tin of paint.
Minimize COST = 45ALPHA + 12BETA
Subject to
ALPHA + BETA 300 (Brilliance)
3ALPHA 250 (Hue)
ALPHA, BETA 0
In order to use the simplex method, we have to write this model into standard form. Since we have
constraints, we have to subtract surplus variables S1 and S2 0 to balance them. We must also
multiply the objective function by -1 to change it to a maximization model. In the standard form
the model is:
Maximize Z = -45ALPHA 12BETA

Subject to
61
ALPHA + BETA S1 = 300

3ALPHA - S2 = 250 (Hue)
ALPHA, BETA, S1, S2 0
When a solution is obtained, the surplus variable S1 indicates the amount by which the brilliance
obtained by the blend will exceed the minimum brilliance. Similarly, S2 will indicate the amount
by which the hue obtained will exceed the minimum requirement for hue. It is obvious that S1 and
S2 must always be 0. Slack and surplus variables represent physical quantities and cannot be
negative.
LP models having no initial basis can be augmented with artificial variables to create a basis. The
artificial variables R1 and R2 0 are added to constraints:
ALPHA + BETA S1 + R1 = 300
3ALPHA - S2 + R2 = 250
These artificial variables are only used to force an initial basis to start the simplex method and
have no physical meaning.
If we now set ALPHA=0, BETA= 0 and S2 = 0 we have R1 =300 and R2 = 250. This is a feasible
solution to the augmented model but not to the original model since R1 and R2 are not part of that
model.
Using LINDO/LINGO to solve Christines problem
When we use LINDO/LINGO to solve a problem like Christines, we do not even have to think
about artificial variables. LINDO or LINGO automatically augments the model to create an initial
solution.
Use the original model:
Minimise COST = 45ALPHA + 12BETA
Subject to
62
ALPHA + BETA 300
(Brilliance)
3ALPHA 250
(Hue)
ALPHA, BETA 0.
SOLUTION:

1)
6350.000
VARIABLE
IMISE
VALUE
REDUCED COST
0.000000
1.000000
ALPHA
83.333336
0.000000
BETA
216.666672
0.000000
DUAL PRICES
2)
0.000000
-12.000000
3)
0.000000
-11.000000
NO. ITERATIONS=
The optimal solution is to use 8,333 grams of ALPHA and 21,667 grams of BETA in each type
for a minimum cost of Ksh. 6,350 each.
Since the SLACK OR SURPLUS values for both constraints are zero, both constraints are binding,
indicating that the requirements on brilliance and the hue have been met.
Getting equal (=)
We used surplus variables to balance Christines problem and then artificial variables to create an
initial basis.
63
When we have a problem with where the constraints are of = type, we do not readily have a feasible
starting solution. We must consider artificial variables to create an initial basis.
Consider the following LP model:

Maximize Z = x1 + 2x2 + 3x3
Subject to
x1 + 2x2 + 3x3 = 15
2x1 + x2 + 5x3 = 20
x1 + 2x2 + x3 = 10
x1, x2, x3 0.
Add artificial variables to the constraints:
x1 + 2x2 + 3x3 + R1
2x1 + x2 + 5x3
x1 + 2x2 + x3
= 15
+R2
= 20
+R3
= 10
Augment the objective function by adding each artificial variable mulitiplied by a large negative
number, say M.(why?)
The augmented model is:
Maximize Z = x1 + 2x2 + 3x3- MR1 MR2 MR3

64
Subject to
x1 + 2x2 + 3x3 + R1
2x1 + x2 + 5x3
= 15
+ R2
x1 + 2x2 + x3
= 20
+R3
= 10
x1, x2, x3, R1, R2, R3 0.

The initial model is keyed into LINDO
Max
x1
2x2
3x3
Subject to
x1 + 2x2 + 3x3 = 15
2x1 + x2 + 5x3 = 20
x1 + 2x2 + x3 = 10
Consider the basis in the initial tableau. It is the same basis as in our augmented model.
65
THE TABLEAU
ROW (BASIS)
X1
X2
X3
1 ART
-1.000
-2.000
-3.000
2 ART
1.000
2.000
3.000
15.000
3 ART
2.000
1.000
5.000
20.000
4 ART
1.000
2.000
1.000
10.000
-4.000
-5.000
-9.000
-45.000
ART
ART
0.000
If we solve the model we obtain:

1)
15.00000
VARIABLE
VALUE
REDUCED COST
X1
2.500000
0.000000
X2
2.500000
0.000000
X3
2.500000
0.000000
DUAL PRICES
2)
0.000000
1.000000
3)
0.000000
0.000000
4)
0.000000
0.000000
NO. ITERATIONS=
66
The optimum solution is :

X1 = 2,5
X2 = 2,5
X3 = 2,5
With maximum Z of 15
All the constraints are binding.
Getting mixed up
We have now considered constraints wit Marks problem, constraints with Christines problem
and = constraints in the previous paragraph. Most LP models have a combination of these.
Consider the following LP model:
Maximize 1=2D +2E-F
Subject to
D+E+
F 10
D + 2E -
F 8
-D + E + F= 2
D, E, F 0
S1 has a coefficient of 1 in the first equation and a coefficient of zero elsewhere. It can be
used in the initial basis. The second and Third equations have no candidates for a basis and
we add artificial variables to them.
The augmented model is:
Maximize 1 =2D +2E F MR2 MR3
67
Subject
to
D+
E +
F +
S1
D + 2E - F
-D
=10
-S2 +R2
+ E+F
=8
=2
All variables 0
Our initial basis consists of S1, R2 and R3.
The model in LINDO is
THE TABLEAU
ROW (BASIS)
1 ART
SLK
2 SLK
-2.000
-2.000
1.000
0.000
0.000
0.000
2 SLK
1.000
1.000
1.000
1.000
0.000
10.000
3 SLK
-1.000
-2.000
1.000
0.000
1.000
-8.000
-1.000
1.000
1.000
0.000
0.000
2.000
0.000
-3.000
0.000
0.000
0.000
-10.000
4 ART
ART
ART
Note that the initial basis in the tableau and in the augmented model are the same
If we solve the model we obtain:
68
LP OPTIMUM FOUND AT STEP 2

1)
20.00000
VARIABLE
VALUE
4.000000
6.000000
0.000000
REDUCED COST
0.000000
0.000000
3.000000

2)
0.000000
DUAL PRICES
2.000000
3)
8.000000
0.000000
4)
0.000000
0.000000
NO. ITERATIONS=
The optimal solution:

D = 4, E = 6, F=0, S1 = 0, S2 = 0, S2 = 8
with I = 20
Constraint 2 has a surplus of 8 (S2 = 8). The other two constraints are binding.
Exercises
a) Write down the augmented model and initial basis for the following model. Then use
LINDO/LINGO to solve the models and compare the initial basis you have written down
with the initial basis obtained using LINDO or LINGO
Maximize Z = 4x1 + 2x2 3x3 + 5x4
Subject to
2x1 x2 + x3 + 2x4 50
69
3x1
X1 + x2
-x3 + 2x4 80
+ x4 = 60
X1, x2, x3, x4 0.

(The optimal solution is, X1= 0, x2 =20, x3 = 0, x4 =40, S1 = 10, S2= 0, with Z = 240. )
b) Photo Chemicals produces two types of picture-developing fluids. Both produces cost
Photo Chemicals Ksh.1 per litre to produce. At least 30 litres of product 1 and at least 20
litres of product 2 must be produced during the next two weeks. The perishable raw
material needed to produce these two products will spoil within the next two weeks if not
used. Product 1 requires one kilogram of this raw material per litre and product 2 requires
two kilograms of this raw material per litre. Management requires that at least 80kg of the
raw material must be used in the next two weeks.
Formulate as an LP model. Solve with LINDO/LINGO.
(Expected solution : 30ltrs of product 1,25ltrs of product 2, Cost Ksh.55 and S3=0)
70
TOPIC 2: MARKOV CHAINS AND ANALYSIS

Markov Chain or Markov process is a probabilistic model. In this process, it is presumed that the
probability of change from one state to any future state is dependent only on the present situation.
It does not consider to how such a change or transformation has taken place. This assumption helps
in formulation of the mathematical model, since the present state is known and a definite approach
can be adopted in such a formulation. Many probabilistic situation needing future projections can
be treated as part of Markov process or chains.
Let us take an example of product situation. The level of demand for the production of one item
has a certain probability. Thus item reaching the market or getting raw material for this product by
a certain probabilistic time can be considered as part of Markov chains. This will need checking
either with the customer or vendor, if we want to establish the probability of such an occurrence.
Its effects on the future production or on the future acceptance by the customer can be brought in
as a mathematical approach.
Of late, Markov tools have become useful tools for a decision making process by the management.
It is much more useful in the area of Marketing as evident from the example given above. By this
method, a useful insight into future market share can be evaluated as this can be conveniently used
to predict the customer perception and anticipation for a particular product, brand or their future
choices of cost/pattern/product. An extensive use has also been made for studying the future failure
pattern of maintenance requirements, thus establishing useful and effective maintenance policies.
Future of stock market or finance implications can also be usefully studied following Markov
chains. Even movement of people and the attitudes of people can be described by Markov process,
thus Markov chains can be used for prediction such as
1. Probability of finding a system in any state at any time.
2. Long term probabilities of being in the same state.
ANALYSIS THROUGH MARKOV CHAINS
71
Markov chains follow experimentation for some parameters in order to get chains results for
further analysis. Let us say, we can perform n experiments and obtain m results. Each result or
outcome will be called a state and occurrence of each outcome will be based on the probability of
the previous experiment. Earliest chain of system is discrete and having uniform value over a
length of time. When system remains in one state, the probability of an outcome can be predicted.
This can be followed at regular time intervals and the process is called discrete.
Now let us understand the concept of the change from one state to another in order to arrive at a
future outcome. When change occurs from one state to another or remains in the same state for a
given time period, the probability is called Transitional probability. But when the change of one
state to another state depends on the outcome of the preceding happening, the probability is called
Conditional. Since each time, a new outcome occurs either due to transitional or conditional
probability, the process is said to have stepped or incremented one step.
These steps are to be denoted by a definite number indicating how many steps the process has
preceded ahead or stepped forward.
In order to formulate the mathematical concept, let us consider how a one-step transition can be
depicted. Transitional probability matrix is given as follows:
To
State at the next period
a1
From state in the current period p
am
pm1 pm 2
p m3
a1
p11
a2
p 21
a2
p12
p 22
a3
...a m
p13 ...p1m
p 23 ....p 2 m
....pmm
It is a square matrix, whose elements indicate a non-negative probability and hence,
72
p
j 1
ij
Where p ij is the probability of being in state j in the next period,
when the system is in state i now.

0 pij 1
And
(This is conditional probability)
It need be understood that any zero element in the transition matrix indicates that the transition
state is not possible. The steps of process can be written in the form of probability tree diagram,
connecting transition probabilities to the outcomes over a period of time.
ASSUMPTIONS IN MARKOV ANALYSIS
While discussing Markov chains, the following assumptions are made
1. The system has a finite set of possible outcomes.
2. The condition of the system in any given period depends on preceding period condition.
3. The transition probabilities are constant over a given length of time.
4. Changes in the system may occur with regularity.
In first order Markov chains, all the above assumptions are valid, whereas in second order Markov
chains, the probability of next outcome may be based on the two previous outcomes, hence the
concept of higher order chains.
A second order Markov chain assumes that the probability of the next outcome may be based on
the two-previous outcomes. In fact, this topic can be extended to describe higher order chains. But
in this chapter, we will restrict ourselves to our first order Markov Chains.
STEPPED TRANSITION PROBABILITIES

In the case of application of Markov Chains, we will consider the evaluation of the probabilistic
movement of the system over a period of time. When we write n 0 , it means the system is in the
same state or zero-step forward. When we want to establish the probability after some define
steps, say n , we write the transition probability as p1 .
n
73
The corresponding transition matrix can be written as
p2
n
a1 p11
n
a 2 p 21
n
a m p m1
n
n
p12
....p1m
n
n
p 22
....p 2 m
n
n
pm
....p mm
The elements of this matrix can be interpreted as follows:

Here p 21
depicts the probability that the system which is in state a2 will move to a1 after n -
steps.
m
Hence,
p
i 1
And
p
j 1
n
i
1 for all i s
ij
When we want to write probability at time t n 1,
Then p j
n 1
pi
i 1
pij
Where n 0,1,2.....
Generally, these relationships can be reduced to
p1 n 1 p2 n 1 .........
......p n
n 1
p11
n
n
n p 21
p1 . p 2 .........p n
p
31
p
m1
p12
p 22
p32
pm2
...p1m
...p 2 m
...p3m
...p mm
Or else Rn 1 RnP
Where R is row vector and hence Rn 1 is row vector at t n 1 and Rn at t n.
74
Similarly Rn Rn 1 p R0 p n
SOLVED PROBLEMS
1. The transition of state can also be depicted in the form of the probability tree which is
shown thus:
Work out the probabilities.
Solution
p11 0.70 0.70 0.30 0.60 0.67

p12 0.70 0.30 0.30 0.40 0.33
Probability calculation can be explained like this:

If we start with the present state at n 0.
Than p1 0 denotes outcome at n 1.
Hence R1 R0 p
0.70 0.30
0
0.60 0.40
Similarly R2 R1 p
0.7
0.67
0.70 0.30
0.30
0.60 0.40
0.33
75
This is what is indicated in the form of probability tree above.
MAINTENANCE AND REPLACEMENT Models

Maintenance of assets is an important managerial function, because full utilization of resources
can ensure optimal production and healthy financial level of business. While the preventive
maintenance is crucial for day-to-day operations, the overhauling and long term deliberate
maintenance at regular intervals can save large investment in terms of buying new assets in case
of failures of the existing assets. The problem of replacement of parts, sub-parts, machines or men
arises when the assets, be these machines, tools, capital assets or individuals, fail partly or
completely. When an asset fails partly, the replacement of sub-assemblies or assemblies can save
the total replacement, while complete failure will invite replacement of the total assets leading to
heavy capital investment. The part replacement can restore the asset to a reasonable working level
by the maintenance procedure. During the process of maintenance, we may reach a stage, when
instead of preventive maintenance of old parts, a replacement becomes necessary and proves to be
cost effective against very heavy maintenance cost. For any organization, it is therefore important
to formulate most economic replacement policy to safeguard its assets from breaking down.
DEFINITION OF MAINTENANCE
It has become all the more important because with the increasing advancement in technology and
automation, the equipments have gone expensive and their maintenance has become an important
function for managers at all levels. Well-maintained plants and equipment result in better capacity
utilization, higher productivity and increased profitability. As brought out earlier, maintenance
does not necessarily mean attending to the breakdowns, but efforts should be made to minimize
these breakdowns. Hence before we discuss the replacement policies either during breakdown or
total replacement, let us list out some of the preplanning steps known as Preventive Maintenance.
These are enumerated below:
1. A schedule for daily or periodical inspection of equipment for day-to-days resetting or
repairs.
76
2. A schedule for proper lubrication of moving parts.

3. A plan for periodic monitoring of complex, critical and expensive components for certain
symptoms like vibrations, noise, excessive heating or pressure increase or noticeable
decrease in performance capability.
4. A plan for periodic replacement of moving parts as per the life-pattern details.
5. A plan for procurement of certain spare parts for general plant maintenance.
6. A plan for manpower requirement including their skill upgradation for the effective
maintenance.
7. A
plan
for
periodic
shutdown
of
facilities
for
thorough
checkup
and
overhauling/maintenance to avoid breakdowns.

8. A plan for appropriate maintenance policies depending upon the process, the product,
machinery and equipment, components, operating conditions, skills and expenditure levels
etc.
Thus a formal definition of maintenance can be written as- it is a function of the plant
management concerned with day-to-day of keeping the manufacturing assets in healthy operating
condition. The measure of failure, its frequency or the probability density function with reference
to the life cycle of the plant/components can be used for the purpose of drawing a comprehensive
and detailed maintenance plan based on scientific inferences. We can use the following three types
of failure probability distribution:
1. Normal distribution
2. Negative Exponential Distribution
3. Hyper-Exponential Distribution
AREAS OF MAINTENANCE
The maintenance should be restricted to the concept of only the plant/machinery failures. In fact
a plant needs maintenance in the following areas:
1. Plant and equipment i.e. Machines, vehicles, or accessories etc.
2. Supporting facilities i.e. bulbs, tubes, TVs etc
77
3. Building and other factory premises

4. Area cleaning and safety aspect
5. Water disposal and recycling
6. Environment protection measures and equipment.
OBJECTIVES OF MAINTENANCE
Some of the important objectives of maintenance are listed below:
1. Minimizing the idle time of the plant facilities
2. Minimize the repair time and cost
3. Minimize the production loss due to breakdowns
4. Minimize accidents through effective inspection system and resulting maintenance
5. Minimize inventory carrying cost by proper planning and effective spares management
6. Improve quality of products
7. Improve the productivity of the production facility
8. Prolong life of capital assets
9. Keep manpower and machines in good operating conditions
10. Maximize economy in production through optimum use of facilities.
ECONOMY OF MAINTENANCE
Maintenance is an essential function to keep the facilities healthy, but the economy of maintenance
would depend on,
1. Type of maintenance system selected
2. Efficiency of the maintenance of organization.
The critical nature of the systems would enhance the maintenance cost, if production holds up
are costly.
The optimal level of maintenance can be obtained by drawing relevant cost curves (if proper
records of maintenances/failures are kept). The curves are given below.
78
TYPES OF MAINTENANCE
Following types of maintenance needed are for various areas.
1. Corrective maintenance
2. Preventive maintenance
3. Predictive maintenance
4. Total productive maintenance (TPM)
Corrective Maintenance: includes the breakdown maintenance, failure/defect analysis and
corrective action theorem.
It involves the in-depth analysis of the following aspects of plant functions:
a) Process improvement
b) Design improvement
c) Analysis and replacement of defective parts
d) Analysis and improvement in maintenance operations
Preventive Maintenance: As the name suggests, these are the steps or actions taken to prevent the
breakdown of the plant, machinery or any maintenance system. It involves all the operations from
design onwards-and the constant watch on servicing and failures. Servicing is very important
operation in during preventive maintenance cycle. It may vary from daily, weekly, monthly,
quarterly, half yearly or annually etc., depending on the type of equipment.
Predictive Maintenance: This concept is more relevant with plant, machinery and equipment
having number of moving parts. If we can design products/plant/machinery with less number of
moving parts it reduces the maintenance cost considerably, because wear and tear will be less.
The predictive maintenance also can reduce failure rate by predicting failures beforehand by using
effective tools and techniques and carrying out corrective or preventive actions in time. This would
reduce long down time of the equipment or the plant and also would reduce a large spares
inventory. It enhances the operating life of the plant.
79
Total Productive Maintenance (TPM): The main principle involved in this concept is the
combination of the above three maintenance systems, namely corrective, preventive and
preventive maintenance. The ultimate aim of the TPM, as it is commonly known, is to develop an
operation system, wherein the preventive maintenance (PM) and predictive maintenance action
(PMA) are used to achieve maintenance prevention (MP), thus gaining Maintainability
Improvement (MI). Notionally, TPM philosophy is not to wait for the breakdowns, the selective
repairs and preventive maintenance known as Condition-Based-Maintenance is carried out by a
group or team of maintenance people. It is worth introducing the concept of Mean Time between
Failures (MTBF).
The MTBF is defined as follows:
MTBF =
For utilization of MTBF concept, an accurate record of breakdowns and failures are kept and then
MTBF is analyzed for all components/sub-assemblies by statistical methods, so that preventive
and breakdown is carried out by the maintenance team well before actual stoppage of work occurs.
MAINTENANCE POLICY
The selection of maintenance policy depends on the level of maintenance activity desired to be
established for the plant facilities. It is a well-established fact that better maintenance facilities
would ensure smooth and efficient production management and thus in the overall interest of the
organization, would be less costly. If the maintenance levels are reduced, there are likely to be
frequent breakdowns, either due to poor operating conditions or due to natural wear and tear. It
might result in frequent replacements of components/assemblies or the whole machine itself. Thus
it would result in high cost to the organization. The low level of maintenance may be an intentional
policy, where the top management is concerned about obsolescence of the equipment at smaller
intervals. Such equipment, therefore, may not be maintained at high cost maintenance, because as
it is, it would need up gradation or replacement at frequent intervals when change in the system or
technology is fast. Some other points needing consideration in formulating the maintenance policy
are as follows:
80
1. We may decide to contract out specialized jobs of maintenance such as building work or
some jobs during the peak period to avoid gaps and to systemize additional recruitments
and capital investment in machines and equipment.
2. We may decide to delay some maintenance jobs to a slack period, if it does not disturb the
balance of operations and some jobs like major overhauls and painting jobs can be planned
during slack period.
3. If we decide to replace the equipment, machines and manpower at an appropriate time, we
may be getting the best out of them even after proper replacements.
MAINTENANCE MODELS/TECHNIQUES.
Estimation of Breakdown Cost
When we know the service required from earlier experience of a machine or facility or
when the failures can be predicted using OR models or statistics methods, degree of the
preventive maintenance can be established and the information can be effective used to
work out the breakdown cost . The comparison of the maintenance policy being followed
can be the done with the worked out or formulate maintenance policy .
Computation of preventive maintenance cycle
Since breakdowns are not regular and cannot be known in advance, their occurrence can be
described as random. Due to these characteristics these may follow various frequency
distributions, viz. exponential, normal or hyper-exponential, etc. Hence, we can use this concept
i.e., the statistical techniques to lay down maintenance policy and one such parameter considered
is Preventive Maintenance Cycle (PMC) we can use it to work maintenance cycle time (Tc),
average time between breakdowns (Ta) or the average preventive maintenance time (Tm).
Computation of Depreciation
It is generally believed that the value of the assets come down with time. It is due to the ageing
resulting in deterioration in performance. The reduction in value due to ageing or deterioration in
performance is called Depreciation. Even legally, the assets depreciation is statutory
81
requirement. Depreciation, therefore, is a healthy practice for replacement of assets. There are
various methods available for calculation of Depreciation of facilities such asa) Straight line method
b) Sum of years digit method
c) Diminishing balance method
d) Sinking fund method
e) Annuity charging method
f) Machine- hour method
g) Insurance method
h) Re-valuation method
The first three are the commonly used and easy to operate.
a) Straight line method: when depreciation is assumed to be distributed equally over the life
period of the equipment, we have
Depreciation = ()
This is valid when we consider the resale value after the life period is zero i.e., scrap value = 0.
But when we consider a residual value at the time of replacement of the asset, then
Depreciation =

()
b) Sum of Years Digit Method: When we consider the depreciation in the first year as
maximum and then reducing in successive years, it is called sum of years digit method.
This is calculated in terms of ratios for each year, as follows:
Year 1, ratio r1
For year 2,
r2
n
di
where n = life expectancy and di = sum of year digits
n 1
d1 d 2 ....d n
82
rn
For year n,
1
d1 d 2 ....d n
Then depreciations are calculated as follows:

Depreciation for year 1 = (C-RS) r1
Where
C = Capital investment
RS= Residual value at the end of life.
Depreciation for year 2= (C-RS) r2 and so on.

For example, if the life expectancy of a machine is 5 year then
r1
5
5
1 2 3 4 5 15
r2
and
n 1 4
d i 15
r3
3
15
r4
4
15
r5
1
15
c) Diminishing Balance Method: when the asset value C gets depreciated every year at a fixed
rate r, then the depreciated value after n years of the life is given by
83
Depreciati on c(1 r ) n
If we take hypothetical case of a machine with initial cost of Ksh. 25,000, and scrap value after 5
year effective life taken as Ksh. 5,000, then
5,000
r 1
25,000
1
5
1 0.2
0.2
Thus depreciation every year can be calculated at this rate r.

REPLACEMENT POLICY
During the maintenance period, there may be the requirement of only minor repairs or
maintenance, but there could also be the requirement of replacement of parts (components), subassemblies or assemblies. Hence after having discussed the Maintenance policy, we now turn our
attention to the Replacement Policy. The most economic replacement policy can be formulated
under following conditions:
1. Replacement of parts whose efficiency deteriorates with time
2. Replacement of parts that fail suddenly and completely
3. Replacement due to change in process or technology
Replacement of parts with Deteriorating Conditions
The reduction in efficiency of the machine can be noticed and measured when the output gets
affected in quality or quantity. It can be said that when preventive maintenance cost becomes
excessive and it is no more economical to maintain the assets/equipment, we decide to replace
it. The optimum level of replacement, therefore, is normally based on the cost involved. The
following cases can be discussed in particular.
84
Replacement of parts/items, when running cost increases with time, but the value of money
remains the same during the time under consideration for policy decision.
Case I: When time is a discrete variable.
Let C = Capital cost of the equipment (new)
Sn = Salvage value after life period of n years
RC (n) =Running cost for the nth year
And n= life period of the asset (year of useful service)
Total Average cost incurred during n years
C Sn n
AC( n )
RCi / n
n i 1
We assume that (C-Sn) decreases gradually over n years and RC(i) increases monotonically. We
can now formulate a policy that we should decide on the life period of the equipment when RC (i)
is minimum.
Hence
RC( n 1) > RCn < RC (n+1)
Hence we replace if RC(n ) > (Sn S (n+1) + AC (n+1) otherwise replacement is not thought of.
Case II: When time is a continuous variable.
In this case, the difference in the relationship would be
C Sn n
RCn
RCi dn n
n 0
In order to minimize RC (n), which is the aim,

85
d
RCn 12 C S n nRCn 0n RCi dn
dn
n
C Sn
RCn
RCi dn n
n 0
n
or
= AC (n)
It establishes that if the average total cost for n years is equal to the current annual running cost,
then replacement should be planned.
Replacement of Item that Fails Completely
When the item equipment fails suddenly and completely, its utility is completely lost and its
replacement policy can be drawn only on the basis of its probability of failure. The mortality tables
are useful in such a case.
Let,
S (t) = Number of items surviving at time t
And F1 (t) = 1- S (t) = Fraction of item failed at first failure.
And N =Total number of items in the system.
Then the probability of failure of the item during the period t and (t-1) is given by
P (f) =
S (t 1) S (t )
and the conditional probability that an item survived upto the age (t-1) is and
N
the fails suddenly
S (t 1) S (t )
S (t 1)
Let the cost of replacement after failure = Cf

And the cost of preventive replacement =CP
Let T= Total survival time (service life)
86
And I = Initial Investment

Then, cost of total replacement
=
NF1 (T )C f N 1 F(1) (T )C P
N .I
= C f C p
F1 (T ) C p I C f C p
I
This will be minimum only, if factor Cp/ (Cf -Cp) is minimum
F1 (T ) /(C f C p )
Thus we can replace an item when

I
I= S (t )dt or S (t )
0
I
t
Bulk Replacement Strategy

Instead of individual item replacement, sometimes we can consider the replacement of items in
bulk, when such items are susceptible for sudden failure like electric bulbs etc.
If we can choose the data for failures, we can work out the replacement policy.
MAPI
This is a very useful technique for high cost item replacements. It can be used for new as well as
old machine replacements.
For new machines, we use the concept of economic life and the method used is DCF (Depreciated
Cost Factor), since total cost is the sum of the capital cost and the operating cost, the recovery of
the value is worked out on the basis of Capital Recovery Factor (CRF); given below.
87
R = P (CRF)
Where
R = End of the period payments

P = Present Value
CRF = Capital recovery factor
i (1 i ) n
=
1 i n 1
Where
i = rate of interest
ILLUSTRATION
A company has recorded the following breakdown frequencies over the last two years. Work out
the maintenance policy from the cost effective point of view.
Number of breakdowns: 5
Number of months
:2
Average breakdown cost is Ksh.5,000 per month

Present breakdown cost is Ksh. 6,000 per month
Solution
Number of breakdowns
Number of months
Frequency occurrence
2/24=0.08
0.125
0.08
0.20
0.20
0.125
0.167
Expected value
50.08=0.4 0.875
0.16
0.60
0.60
0.75
0.835
88
Total expected value of breakdowns
= 4.22
Therefore, Expected breakdown cost per month= 4.225,000

=ksh.21,100
If the cost incurred in the previous years on the average exceeds Ksh.21, 100 per month, then the
new breakdown policy is preferred.
89
TOPIC 3: NETWORK MODELS

Network models are commonly used models in the area of mathematical programming.
Examples of areas where its applied include transportation, financial management, inventory
control, production planning, project planning, facility location, distribution etc.
Reasons why the models are used include the following;
Blends well with LP models or integer programming problem since they can be easily
modeled to networks.
Easier to formulate than alternative LP models of the same problem.
Pictorial nature of networks makes them relatively easier to comprehend and understand.
The following three types of network models are used for a variety of managerial applications:
Namely,
a) Minimal spanning tree problem model,
b) Shortest route problem
c) Maximal flow model
a) Minimal spanning tree model

This is a problem that involves selecting the network that forms a tree that spans (connects) the
nodes of interest. This model is applied in transportation and telecommunication networks. This
problem requires selection of the set of arcs for network that provides a route between all pairs of
nodes and minimizes the total distance or cost or time to do so.
Illustration 1
Kakusi a large agricultural firm is in the planning stage of establishing a new firm for producing
special types of coffee in Kenya. The firm has 10 fields in which coffee will be planted. A
primary concern is providing a definite water supply to the fields. Supply of water is not a
problem. The firm wishes to minimize the cost of installing a water pipe network that reaches all
fields. A well will be drilled at one of the fields from which all others will be supplied.
Figure 1 below is a network diagram where each node represents a field and each arc represents
a potential water pipe link between respective fields. The number attached to each arc represents
costs (Ksh. 1000s) associated with installing the links. Cost primarily reflects the cost of the
pipe, labour and equipment.
90
Required:
Determine the water pipe network that connects all fields at a minimum total cost of installation.
10
12
7
1
0
8
5
10
14
11
3
Solution Procedure
In order to solve the minimal spanning tree problem above we adopt the minimal spanning tree
algorithm as follows.
Step A: select any node and identify the least distance (cost or time) node. Connect the two
(break any ties arbitrarily)
Step B: Identify the unconnected node that is least distance from any connected node and
connect the two (Break tie arbitrarily)
Step C: Repeat step B until all nodes have been converted
91
Solution
Suppose we begin arbitrary with node 1 or can choose any other node. The shortest arc (cost
wise) emanating from the node 1 is that leading to node 2 then connecting these two nodes (1-2)
the next shortest unconnected arc from node 2 is node 5. Repeated, this process shows these
results
Solution step
Nodes connected
1
2
3
4
5
6
7
8
9
1-2
2-5
5-6
5-7
6-3
5-9
5-4
9-10
10-8
Connection
(sh.1000s)
7
5
5
4
6
6
7
7
6
Cumulative cost
7
12
17
21
27
33
40
47
53
The minimum spanning tree problem for firm irrigation

4
7
9
7
2
1
0
6
5
5
1
8
6
6
3
92
Tabular Approach: Minimal Spanning Tree Algorithm

Step A: Select any node and declare it connected. Label the row corresponding to the connected
node with an asterisk (check mark, etc.) and cross off the column corresponding to this node.
Step B: Examine the rows labeled as connected, and circle the smallest remaining element in
these rows (ties broken arbitrary). The column in which the element lies represents the new
connected node. Label the row corresponding to this node as connected, and cross off the
corresponding column.
Step 3: Repeat step B until nodes are connected. The minimal spanning tree is represented by the
coloured elements.
From
field
1*
2*
3*
4
5*
6*
7*
8
9
10
To
field
5
7
14
8
-
7
12
5
-
14
10
6
7
-
12
7
10
-
8
5
10
7
5
9
6
-
10
6
5
4
9
-
7
4
11
-
9
9
11
8
6
10
6
8
7
6
7
-
The Shortest Route Problem

The shortest route problem is to determine the shortest distance path from a specified node to
another node.
The shortest-route algorithm determines the shortest path from one specified node to all other
nodes. The algorithm assumes that the distance cij separating nodes i and j is nonnegative. The
algorithm consists of two parts; a labeling procedure is used to determine the shortest distance
from one specified node to each of the other nodes. The backtracking procedure is used to
define the actual shortest-distance route to each node
93
14
7
10
13
12
11
14
15
14
10
13
10
11
15
14
5
4
13
Consider the simplified network below,
11
22
6
18
13
10
6
26
4
If we consider node 1 as the origin the labeling procedures results in all remaining nodes being
assigned a label. The label assigned to node n has the form ( dn, p)
dn= distance from the origin to node n using specified route.
94
P = the node preceding node n on the route.

As the algorithm progresses, the labels will be classified as either temporary labels or permanent
labels. Nodes are initially assigned temporary labels. The temporary label may change as the
algorithm progresses. When the shortest route to a given node is identified, the node is assigned a
permanent label.
Labeling procedure
Step A; consider all nodes connected directly to the origin. Assign temporary labels to each
where the distance component equals the distance from the origin. The predecessor part of the
label is the origin.
Step B; permanently label the nodes whose distance from the origin is the minimum. If all nodes
are permanently labeled, perform backtracking procedure.
Step C; identify all unlabeled or temporary labeled nodes that can be connected directly with
node l.
Compute for each of these unlabeled or temporarily labeled nodes the sum of the distance from
the origin to node l and the distance from node l to the node of interest. If the node of interest is
unlabeled, assign a temporary label. If the node has a temporary label, update the label only if the
newly calculated distance is less than that for the previous label.
Illustration
Let us now apply the labeling procedure to the network in the figure below. All nodes are
connected directly to the origin have been identified and labeled the least distant node from the
origin is node 3. The node is permanently labeled.
Applying step C, we identify all unlabeled or temporarily labeled nodes that can be directly
connected to node 3. This set includes node 2, 4, 5 and 6. Distances are calculated for each of
these nodes by adding the distance label for node 3 to the distance from node 3 to the respective
nodes. These are shown in Table below. The new distance to node 2 equals 23, which is greater
than that for the temporary label. Thus the label for node 2 remains unchanged in the figure
above.
Second Iteration
95
(22,1)
2
5
22
(18,1)
18
3
13
10
7
6
26
8
4
Second Iteration
Temporary
Node 3
Labeled
Node(j)
Distance
Distance
Label
Previous
From Node 3
Calculated
to Node j
New
Distance
Distance
Total
Label
Label
18
23
22
22*
18
25
26
25
18
24
No label
24
18
13 =
31
No label
31
96
(22,1)
2
22
6
(18,1)
18
13
10
26
4 7
The newly calculated distance for node 4 equals 25,compared with the labeled distance of
26.Since the new distance is less ,node 4 is labeled as (25,3).Note the relabeling of the
predecessor node. Nodes 5 and 6 were previous unlabeled. These nodes are assigned temporary
labels. Given the nodes having temporary labels (2, 4, 5 and 6) node 2 has the smallest distance
label. Applying step 3, node 2 becomes permanently labeled in figure 10-27.
Repeating step 3,the only node that can be connected directly with node 2 is node 5 .As can be
seen in Table 10-12,the newly calculated distance to node 5 equals 33,which exceeds the
temporary distance label for that node. Thus, the temporary label for node 5 is unchanged.
Applying step 2, node 5 has the minimum distance label for all temporary labeled nodes .thus it
becomes permanently labeled.
Third Iteration
Temporarily
Node2
Distance
Previous
labeled
Distance
From Node 2
Note (j)
Label
to Node j
22
No connection
22
22
No connection -
11
Calculated
Distance
Total
Label
New
Distance
Label
25
25
33
24
24
31
31
97
(22, 1)
2
(24,3)
5
22
(18,1)
(32,5)
7
18
3
13
10
7
26
(27, 5)
4
(25, 3)
All these tables summarize the remaining iterations of the labeling procedure for this problem
.The permanent label represent the shortest distance from the origin to each node. Notice that all
nodes except the origin have labels. In order to state the specific route that results in the shortest
distance to any node, we must use the backtracking procedure.
Fourth Iteration
Temporarily
Node 5
Distance
Labeled
Distance
from Node 5
to Node j
Node ( j)
Label
No connection
Previous
New
Calculated
Distance
Distance
Total
label
label
25
25*
24
24
3 =
27
31
27
24
8 =
32
No label
32
98
(22, 1)
2
(24,3)
5
22
(18,1)
(32,5)
7
18
3
13
10
7
26
(27, 5)
4
(25, 3)
Fifth Iteration
Temporarily
Node 5
Distance
Labeled
Distance
from Node 5
to Node j
Node ( j)
Label
Previous
New
Calculated
Distance
Distance
Total
label
label
25
8 =
33
27
27*
25
No connection
32
32
99
(22,1)
(24,3)
22
6
(18,1)
18
8
(32,5)
13
10
7
26
(27, 5)
4
(25, 3)
Sixth Iteration
Temporarily
Node 5
Distance
Labeled
Distance
from Node 5
Label
to Node j
27
+ 10
Node ( j)
7
Previous
New
Calculated
Distance
Distance
Total
label
label
32
32*
37
(22, 1)
(24, 3)
22
6
(18,1)
18
(32,5)
13
10
7
26
(27, 5)
10
0
(25, 3)
Backtracking .To find the shortest route from the origin to any node, identify the predecessor
part of its permanent label for this node, and move backward to that node. Continue in this
manner until arriving at the origin. The sequence of nodes traced forms the shortest route from
the origin to the node in question.
The figure below indicates the shortest route between the origin and node 7.This route was
identified by moving from node 7 to node 5.The predecessor label at node 5 indicates movement
from node 5 to node 3.The predecessor label at node 3 indicates a final movement backward to
the origin.
Shortest route to node 7
11
22
6
1
18
13
26
10
6
The Maximal Flow Algorithm

The last network algorithm we will discuss is the maximal flow algorithm .Recall that the
maximal flow problem is concerned with determining the maximal flow that can pass from one
input node ,or source, through a network to one output node ,or sink ,in a specified period.
10
1
Before we present a special algorithm for solving this type of problem, we will state three
assumptions. First except for source and sink nodes. Secondly when allocating flow across a path
from the source to the sink, the maximum amount that can flow equals the minimum capacity of
any arc lying on the path. Finally, as we search for the optimal allocations of along various paths
in a network, we must provide a mechanism for making allocations and adjusting or changing
those allocations at a later stage in the search if they are not optimal. The mechanism we will
employ involves a two step process. When making an allocation f along a path, (1) we reduce
the flow capacities in the direction of flow for all arcs on the path by an amount equal to , and
(2) we increase the flow capacity in the opposite direction for all arcs on the path by .To
illustrate, suppose we use the figure below, that five units of flow are allocated along arc 6-8.The
flow capacity is reduced by five units along the arc and increased in the reverse direction by five
units.
12
Before allocation
7
6
5
8
After allocation
The following algorithm finds the solution to the maximal flow problem, where f ii is the flow
capacity from node I and j.
Maximal Flow Algorithm
Step1: Identify any path from the origin to the sink having positive flow capacity, fij,(in the
direction of the path) along each arc of the path .If no such path exists, then the optimal solution
has been found.
Step 2: Determine the minimum positive flow capacity between any two nodes on the path, f*ij
Step 3: Compensate for the flow assignment in step 2 by reducing the flow capacities in the
direction of the flow assignment by f*ij for all nodes on the path by the same quantity.
Step 4: Repeat steps 1 through 3 until an optimal solution has been identified.
Illustration
10
2
A post office at city 1 is preparing for the Christmas rush, during which a heavy volume of mail
always moves from city 1 to city 3. Mail moves by air, truck, or rail from city 1 through city 2 to
city 3. Mail may move via the same mode of transportation for the complete trip, or it may
switch modes at city 2. The figure below is a network diagram of the delivery network. Arcs
labeled A, T, and R represent air, Truck and rail respectively. Nodes 2, 2, and 2 all represent
city 2 in the network. The flow capacities (in 10, 000s of pieces per day) along an arc are
indicated next to each node. Notice that these capacities may vary according to direction of flow
and that each node indicates the flow capacities in a direction away from the node.
0
16
1
A
10
30
Source node
2
3
23
4 T
4
T
R
2
T0
3 4 21
A
4
0
3
sink node
Referring to the figure above, we first identify path 1-2-3 (shipment by air from city 1 to city 3)
as allowing positive flows through each arc on the path. The flow capacity for arc 1-2 (f12' = 16)
is compared with that for arc 2-3 (f23 =23), which gives f*12 = 16. Thus 16 (10,000s) pieces of
mail are allocated along this path. Flow capacities for all nodes on the path are adjusted
according to step 3, as indicated in the figure above.
Arbitrarily, we next identify flow potential along the path 1-2-3. Comparing f12= 30 to f23 =
21, we see that 21(10,000s) pieces of mail can be allocated to move by rail from city 1 to city 3.
Flow capacities for all nodes on this path are adjusted in figure b below. From figure b, flow
potential is identified for the path 1-2-3. You should verify that 4 (10,000s) pieces of mail may
be delivered by truck from city 1 to city 3. The resulting network is shown in figure c.
At this stage, single mode delivery alternatives have been exhausted. There are, however, other
possibilities for shipping mail from city 1 to city 3. For example, mail can go by rail to city 2,
then by truck to the air terminal in city 2, then by air to city 3. How many paths are possible in
this network?
You should verify that the maximal flow between cities 1 and 3 is 470,000 pieces of mail per
day. The table below summarizes the allocations.
10
3
Allocation
1
2
3
4
5
Path
1-2-3
1-2-3
1-2-3
1-2-2-3
1-2-2-3
Quantity
16
21
4
3
3
47
Figure (a)
16
0
10
9
3
0
T4
4 32
T
16
T
4 T 21
21
R
Figure (b)
16
0
1
A
6
2
3
9
3
21
T4
4
0
4 T0
16
T
0
3
21
R
10
4
Figure (b)
16
0
1
A
6
2
3
9
3
4
T4
8
0
4 T0
A
2
16
T
4
3
21
R
Exercises
1.
Physical plant management. A new community college is being established ,and the
director of physical plant is planning the sewer system that will be used to service the 10
buildings to be constructed on campus .The director wants to minimize the amount of
sewer pipe necessary to link all the buildings.
In the figure below the nodes represent the building locations and the arcs represent the pairs of
buildings that can be feasibly linked. The distances (in yards) between the buildings are denoted
on the arcs. Determine the minimum amount of sewer pipe needed to connect all buildings
10
5
90
2
50
70
40
1
65
80
65
100
85
60
40
1
0
70
6
90
110
60
35
60
120
60
7
2. Given the network diagram below, determine the shortest route from node 1 to all other
nodes in the network
8
4
1
7
2
3
7
5
9
10
3
10
7
5
6
5
7
12
10
6
3. Determine the maximal flow from node 1 to node 11 for the network in the figure below
and indicate the flow for each arc in the network.
150
5
60
2
0
80
40
40
20
40
6
1
100
40
70
10
30
120
30
60
25
0
55
50
60
20
90
1
1
50
0
1
0
80
40
0
75
10
7
TOPIC 4: MAINTENANCE AND REPLACEMENT ANALYSIS

Maintenance of assets is an important managerial function, because full utilization of resources
can ensure optimal production and healthy financial level of business. While the preventive
maintenance is crucial for day-to-day operations, the overhauling and long term deliberate
maintenance at regular intervals can save large investment in terms of buying new assets in case
of failures of the existing assets. The problem of replacement of parts, sub-parts, machines or men
arises when the assets, be these machines, tools, capital assets or individuals, fail partly or
completely. When an asset fails partly, the replacement of sub-assemblies or assemblies can save
the total replacement, while complete failure will invite replacement of the total assets leading to
heavy capital investment. The part replacement can restore the asset to a reasonable working level
by the maintenance procedure. During the process of maintenance, we may reach a stage, when
instead of preventive maintenance of old parts, a replacement becomes necessary and proves to be
cost effective against very heavy maintenance cost. For any organization, it is therefore important
to formulate most economic replacement policy to safeguard its assets from breaking down.
DEFINITION OF MAINTENANCE
It has become all the more important because with the increasing advancement in technology and
automation, the equipments have gone expensive and their maintenance has become an important
function for managers at all levels. Well-maintained plants and equipment result in better capacity
utilization, higher productivity and increased profitability. As brought out earlier, maintenance
does not necessarily mean attending to the breakdowns, but efforts should be made to minimize
these breakdowns. Hence before we discuss the replacement policies either during breakdown or
total replacement, let us list out some of the preplanning steps known as Preventive Maintenance.
These are enumerated below:
1. A schedule for daily or periodical inspection of equipment for day-to-days resetting or
repairs.
2. A schedule for proper lubrication of moving parts.
10
8
3. A plan for periodic monitoring of complex, critical and expensive components for certain
symptoms like vibrations, noise, excessive heating or pressure increase or noticeable
decrease in performance capability.
4. A plan for periodic replacement of moving parts as per the life-pattern details.
5. A plan for procurement of certain spare parts for general plant maintenance.
6. A plan for manpower requirement including their skill up gradation for the effective
maintenance.
7. A
plan
for
periodic
shutdown
of
facilities
for
thorough
checkup
and
overhauling/maintenance to avoid breakdowns.

8. A plan for appropriate maintenance policies depending upon the process, the product,
machinery and equipment, components, operating conditions, skills and expenditure levels
etc.
Thus a formal definition of maintenance can be written as- it is a function of the plant
management concerned with day-to-day of keeping the manufacturing assets in healthy operating
condition. The measure of failure, its frequency or the probability density function with reference
to the life cycle of the plant/components can be used for the purpose of drawing a comprehensive
and detailed maintenance plan based on scientific inferences. We can use the following three types
of failure probability distribution:
1. Normal distribution
2. Negative Exponential Distribution
3. Hyper-Exponential Distribution
AREAS OF MAINTENANCE
The maintenance should be restricted to the concept of only the plant/machinery failures. In fact a
plant needs maintenance in the following areas:
7. Plant and equipment i.e. Machines, vehicles, or accessories etc.
8. Supporting facilities i.e. bulbs, tubes, TVs etc
9. Building and other factory premises
10
9
10. Area cleaning and safety aspect

11. Water disposal and recycling
12. Environment protection measures and equipment.
OBJECTIVES OF MAINTENANCE
Some of the important objectives of maintenance are listed below:
11. Minimizing the idle time of the plant facilities
12. Minimize the repair time and cost
13. Minimize the production loss due to breakdowns
14. Minimize accidents through effective inspection system and resulting maintenance
15. Minimize inventory carrying cost by proper planning and effective spares management
16. Improve quality of products
17. Improve the productivity of the production facility
18. Prolong life of capital assets
19. Keep manpower and machines in good operating conditions
20. Maximize economy in production through optimum use of facilities.
ECONOMY OF MAINTENANCE
Maintenance is an essential function to keep the facilities healthy, but the economy of maintenance
would depend on,
3. Type of maintenance system selected
4. Efficiency of the maintenance of organization.
The critical nature of the systems would enhance the maintenance cost, if production holds up
are costly.
The optimal level of maintenance can be obtained by drawing relevant cost curves (if proper
records of maintenances/failures are kept). The curves are given below.
11
0
TYPES OF MAINTENANCE
Following types of maintenance needed are for various areas.
5. Corrective maintenance
6. Preventive maintenance
7. Predictive maintenance
8. Total productive maintenance (TPM)
Corrective Maintenance: includes the breakdown maintenance, failure/defect analysis and
corrective action theorem.
It involves the in-depth analysis of the following aspects of plant functions:
a) Process improvement
b) Design improvement
c) Analysis and replacement of defective parts
d) Analysis and improvement in maintenance operations
Preventive Maintenance: As the name suggests, these are the steps or actions taken to prevent the
breakdown of the plant, machinery or any maintenance system. It involves all the operations from
design onwards-and the constant watch on servicing and failures. Servicing is very important
operation in during preventive maintenance cycle. It may vary from daily, weekly, monthly,
quarterly, half yearly or annually etc., depending on the type of equipment.
Predictive Maintenance: This concept is more relevant with plant, machinery and equipment
having number of moving parts. If we can design products/plant/machinery with less number of
moving parts it reduces the maintenance cost considerably, because wear and tear will be less.
The predictive maintenance also can reduce failure rate by predicting failures before hand by using
effective tools and techniques and carrying out corrective or preventive actions in time. This would
reduce long down time of the equipment or the plant and also would reduce a large spares
inventory. It enhances the operating life of the plant.
11
1
Total Productive Maintenance (TPM): The main principle involved in this concept is the
combination of the above three maintenance systems, namely corrective, preventive and
preventive maintenance. The ultimate aim of the TPM, as it is commonly known, is to develop an
operation system, wherein the preventive maintenance (PM) and predictive maintenance action
(PMA) are used to achieve maintenance prevention (MP), thus gaining Maintainability
Improvement (MI). Notionally, TPM philosophy is not to wait for the breakdowns, the selective
repairs and preventive maintenance known as Condition-Based-Maintenance is carried out by a
group or team of maintenance people. It is worth introducing the concept of Mean Time Between
Failures (MTBF).
The MTBF is defined as follows:
MTBF =
For utilization of MTBF concept, an accurate record of breakdowns and failures are kept and then
MTBF is analyzed for all components/sub-assemblies by statistical methods, so that preventive
and breakdown is carried out by the maintenance team well before actual stoppage of work occurs.
MAINTENANCE POLICY
The selection of maintenance policy depends on the level of maintenance activity desired to be
established for the plant facilities. It is a well-established fact that better maintenance facilities
would ensure smooth and efficient production management and thus in the overall interest of the
organization, would be less costly. If the maintenance levels are reduced, there are likely to be
frequent breakdowns, either due to poor operating conditions or due to natural wear and tear. It
might result in frequent replacements of components/assemblies or the whole machine itself. Thus
it would result in high cost to the organization. The low level of maintenance may be an intentional
policy, where the top management is concerned about obsolescence of the equipment at smaller
intervals. Such equipment, therefore, may not be maintained at high cost maintenance, because as
it is, it would need up gradation or replacement at frequent intervals when change in the system or
technology is fast. Some other points needing consideration in formulating the maintenance policy
are as follows:
11
2
1. We may decide to contract out specialized jobs of maintenance such as building work or
some jobs during the peak period to avoid gaps and to systemize additional recruitments
and capital investment in machines and equipment.
2. We may decide to delay some maintenance jobs to a slack period, if it does not disturb the
balance of operations and some jobs like major overhauls and painting jobs can be planned
during slack period.
3. If we decide to replace the equipment, machines and manpower at an appropriate time, we
may be getting the best out of them even after proper replacements.
MAINTENANCE MODELS/TECHNIQUES.
Estimation of Breakdown Cost
When we know the service required from earlier experience of a machine or facility or
when the failures can be predicted using OR models or statistics methods, degree of the
preventive maintenance can be established and the information can be effective used to
work out the breakdown cost . The comparison of the maintenance policy being followed
can be the done with the worked out or formulate maintenance policy .
Computation of preventive maintenance cycle
Since breakdowns are not regular and cannot be known in advance, their occurrence can be
described as random. Due to these characteristics these may follow various frequency
distributions, viz. exponential, normal or hyper-exponential, etc. Hence, we can use this concept
i.e., the statistical techniques to lay down maintenance policy and one such parameter considered
is Preventive Maintenance Cycle (PMC) we can use it to work maintenance cycle time (Tc),
average time between breakdowns (Ta) or the average preventive maintenance time (Tm).
Computation of Depreciation
It is generally believed that the value of the assets come down with time. It is due to the ageing
resulting in deterioration in performance. The reduction in value due to ageing or deterioration in
performance is called Depreciation. Even legally, the assets depreciation is statutory
11
3
requirement. Depreciation, therefore, is a healthy practice for replacement of assets. There are
various methods available for calculation of Depreciation of facilities such asa) Straight line method
b) Sum of years digit method
c) Diminishing balance method
d) Sinking fund method
e) Annuity charging method
f) Machine- hour method
g) Insurance method
h) Re-valuation method
The first three are the commonly used and easy to operate.
d) Straight line method: when depreciation is assumed to be distributed equally over the life
period of the equipment, we have
Depreciation = ()
This is valid when we consider the resale value after the life period is zero i.e., scrap value = 0.
But when we consider a residual value at the time of replacement of the asset, then
Depreciation =

()
e) Sum of Years Digit Method: When we consider the depreciation in the first year as
maximum and then reducing in successive years, it is called sum of years digit method.
This is calculated in terms of ratios for each year, as follows:
Year 1, ratio r1
For year 2,
r2
n
di
where n = life expectancy and di = sum of year digits
n 1
d1 d 2 ....d n
11
4
rn
For year n,
1
d1 d 2 ....d n
Then depreciations are calculated as follows:

Depreciation for year 1 = (C-RS) r1
Where
C = Capital investment
RS= Residual value at the end of life.
Depreciation for year 2= (C-RS) r2 and so on.

For example, if the life expectancy of a machine is 5 year then
r1
5
5
1 2 3 4 5 15
r2
and
n 1 4
d i 15
r3
3
15
r4
4
15
r5
1
15
f) Diminishing Balance Method: when the asset value C gets depreciated every year at a fixed
rate r, then the depreciated value after n years of the life is given by
11
5
Depreciati on c(1 r ) n
If we take hypothetical case of a machine with initial cost of Ksh. 25,000, and scrap value after 5
year effective life taken as Ksh. 5,000, then
5,000
r 1
25,000
1
5
1 0.2
0.2
Thus depreciation every year can be calculated at this rate r.

REPLACEMENT POLICY
During the maintenance period, there may be the requirement of only minor repairs or
maintenance, but there could also be the requirement of replacement of parts (components), subassemblies or assemblies. Hence after having discussed the Maintenance policy, we now turn our
attention to the Replacement Policy. The most economic replacement policy can be formulated
under following conditions:
1. Replacement of parts whose efficiency deteriorates with time
2. Replacement of parts that fail suddenly and completely
3. Replacement due to change in process or technology
Replacement of parts with Deteriorating Conditions
The reduction in efficiency of the machine can be noticed and measured when the output gets
affected in quality or quantity. It can be said that when preventive maintenance cost becomes
excessive and it is no more economical to maintain the assets/equipment, we decide to replace
it. The optimum level of replacement, therefore, is normally based on the cost involved. The
following cases can be discussed in particular.
11
6
Replacement of parts/items, when running cost increases with time, but the value of money
remains the same during the time under consideration for policy decision.
Case I: When time is a discrete variable.
Let C = Capital cost of the equipment (new)
Sn = Salvage value after life period of n years
RC (n) =Running cost for the nth year
And n= life period of the asset (year of useful service)
Total Average cost incurred during n years
C Sn n
AC( n )
RCi / n
n i 1
We assume that (C-Sn) decreases gradually over n years and RC(i) increases monotonically. We
can now formulate a policy that we should decide on the life period of the equipment when RC (i)
is minimum.
Hence
RC( n 1) > RCn < RC (n+1)
Hence we replace if RC(n ) > (Sn S (n+1) + AC (n+1) otherwise replacement is not thought of.
Case II: When time is a continuous variable.
In this case, the difference in the relationship would be
C Sn n
RCn
RCi dn n
n 0
In order to minimize RC (n), which is the aim,

11
7
d
RCn 12 C S n nRCn 0n RCi dn
dn
n
C Sn
RCn
RCi dn n
n 0
n
or
= AC (n)
It establishes that if the average total cost for n years is equal to the current annual running cost,
then replacement should be planned.
Replacement of Item that Fails Completely

When the item equipment fails suddenly and completely, its utility is completely lost and its
replacement policy can be drawn only on the basis of its probability of failure. The mortality tables
are useful in such a case.
Let,
S (t) = Number of items surviving at time t
And F1 (t) = 1- S (t) = Fraction of item failed at first failure.
And N =Total number of items in the system.
Then the probability of failure of the item during the period t and (t-1) is given by
P (f) =
S (t 1) S (t )
and the conditional probability that an item survived upto the age (t-1) is and
N
the fails suddenly
S (t 1) S (t )
S (t 1)
Let the cost of replacement after failure = Cf

And the cost of preventive replacement =CP
11
8
Let T= Total survival time (service life)

And I = Initial Investment
Then, cost of total replacement
=
NF1 (T )C f N 1 F(1) (T )C P
N .I
= C f C p
F1 (T ) C p I C f C p
I
This will be minimum only, if factor Cp/ (Cf -Cp) is minimum
F1 (T ) /(C f C p )
Thus we can replace an item when

I
I= S (t )dt or S (t )
0
I
t
Bulk Replacement Strategy

Instead of individual item replacement, sometimes we can consider the replacement of items in
bulk, when such items are susceptible for sudden failure like electric bulbs etc.
If we can choose the data for failures, we can work out the replacement policy.
MAPI
This is a very useful technique for high cost item replacements. It can be used for new as well as
old machine replacements.
For new machines, we use the concept of economic life and the method used is DCF (Depreciated
Cost Factor), since total cost is the sum of the capital cost and the operating cost, the recovery of
the value is worked out on the basis of Capital Recovery Factor (CRF); given below.
R = P (CRF)
11
9
Where
R = End of the period payments

P = Present Value
CRF = Capital recovery factor
=
Where
i (1 i ) n
1 i n 1
i = rate of interest
ILLUSTRATION
A company has recorded the following breakdown frequencies over the last two years. Work out
the maintenance policy from the cost effective point of view.
Number of breakdowns: 5
Number of months
:2
Average breakdown cost is Ksh.5, 000 per month

Present breakdown cost is Ksh. 6,000 per month
Solution
Number of breakdowns
Number of months
Frequency occurrence
2/24=0.08
0.125
0.08
0.20
0.20
0.125
0.167
Expected value
50.08=0.4 0.875
0.16
0.60
0.60
0.75
0.835
12
0
Total expected value of breakdowns
= 4.22
Therefore, Expected breakdown cost per month= 4.225,000

=ksh.21,100
If the cost incurred in the previous years on the average exceeds Ksh.21, 100 per month, then the
new breakdown policy is preferred.
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1
TOPIC 5:
DYNAMIC PROGRAMMING
Dynamic programming is a recursive optimization approach to solving sequential decision
problems .by recursive optimization procedure, we mean one that optimizes on a step - by step
basis using information from the preceding steps .In short we optimize as we go Recall that in
the previous mathematical programming algorithms ,optimization was also achieved on a step by
step basis, but it was iterative rather than recursive ;that is each step represent a unique solution
that was non optimal .In dynamic programming ,a single is sequentially related to preceding
steps and is not in itself a solution to the problem. A single step contains information that
identifies a segment of the optimal solution.
Because of these features, dynamic programming is most often applied to problems requiring a
sequence of interrelated decisions. Many time dependent processes are characterized by
sequential decisions that need to be solved; hence the term Dynamic programming (DP). A
more apt term for dynamic programming, therefore might be recursive optimization
FUNDAMENTALS.
Terminology and principles.
The fundamental approach of dynamic programming involves (1) the breaking down of a
multistage problem into its subparts, steps or single stages, a process called Decomposition.
(2)Making decisions one at a time or recursively at each stage, according to a specific
optimization objective and (3) combining the results at each stage to solve the entire problem a
process called Composition .The act of composition results in a set of sequential decision rules
called a policy. For example dynamic programming would optimize an n-decision variable
problem by decomposing it into a series of n stages (each) assigning an optimal value to each
variable and combining the results from each stage to generate theover-ran solution to the
problem.
At each stage, the decision rule is determined by evaluating a criterion or objective function
called the recursive or functional equation. (Functional because it is a function yielding a
single real number)This evaluation utilizes Belmans famous principle of optimality.
An optimal set of decision rules has the property that, regardless of the ith decision,
the remaining decisions must be optimal with respect to the outcome that results
12
2
from the ith decision.

Note that if this were not so, the entire policy could not possibly be optimal. The movement from
one stage affects the stage (a specific measurable condition of the system) which most often is
determined by mathematical equations called transformation functions.
For example the problem of maximizing the return from several different investment projects
subject to an investment budget constrain might be decomposed into stages with each project
stage. The criterion would be the investment return and the recursive or functional equation
might specify the cumulative return through the ith stage .Once decisions have been made for the
first I stages, the state would be the amount of budget remaining .The transformation function
simply specifies that the amount of resource left after the next stage is the amount of resource
entering the stage minus that used up in the stage.
Two basic computational approaches have been developed, the backward computational
procedure, or backward recursion, is illustrated first using the classical shortest route problem.
After reinforcing backward recursions with a capital budgeting example, we will develop the
forward recursion approach in the shortest route problem before proceeding to sometimedependent problems. We will use forward recursions to mimic the passage of time in this time
dependent problems. We will use forward recursions to mimic the passage of time dependent
problems.
Backward recursion Method
Figure 1 below is a systematic representation of a problem involving a sequence of n decisions.
Dynamic programming decomposes the problem into a set of n stages of analysis, each stage
corresponding to one of the decisions. Each stage of analysis is described by a set of elements
decision(s),input state (s)and return(s)(measure of performance)-which can be represented
schematically as in figure 12 -1b.Figure 12-1c shows the notation representation of these
elements when a backward recursion analysis is used.
Figure 12-1d is a schematic representation of the decomposed problem and the n stages of
analysis .We can formalize the notation with the following definition of symbols:
12
3
Figure 1
1
. . .
(a) Sequential of n de
Decision
Stage
Input state
out put state
Return
(b)Model elements for a stage of analysis
xi
si
Stage i
si
ri
(b) Notational representation for a stage analysis
sn
Stage n
sn-1
Stage
sn-2
s1
Stage 1
s0
n-1
12
4
rn(sn,xn)
f1(s1,x1)
rn-1(sn-1,xn-1)
r1(s1,x1)
fn-1(sn-1,xn-1)
f1(s1,x1)
(d)Symbolic representation of n stages of analysis using backward recursion.

I =Stage number (or stage of analysis).
Xi=Decision variable associated with stage i.
Si=State of the system prior to stage i
Ri(si,xi)=Direct criterion return at stage i
Fi(si,xi)=Cumulative criterion return from stages 1 through i.
Two observations should be made .The backward recursion approach results in the last decision
in the sequence corresponding to the first stage of analysis. Similarly, the first decision in the
sequence corresponds to the last stage of analysis-thus reverse order labeling of stages .A
second observation concerns the measure of performance, or returns from each stage. There are
two types of returns the direct return from stage I and the cumulative return (which is of
greatest interest) from stages 1 through i.Notice that both of these depend on the input state and
the decision(s) made at a given stage.
The general form of the recursion equation used to compute cumulative return is
Cumulative return =Direct return+ Cumulative return
Through stage I
from stage I
through stage i-1
Or
Fi(si,xi) = ri(si,xi)+fi-1(s i-1,xi-1)
Illustration 1: shortest Route problem.

Figure 12-2 illustrates a network that represents the stagecoach version of the shortest route
problem .The objective is to determine the path from the origin(1) to the destination (VIII)that
minimizes the sum of the numbers along the directed arcs of the path. A directed arc is line
segment with an arrow to show the direction of travel between two nodes .The nodes are
identified by roman numerals and are used to represent the beginning and end of directed arcs.
Typically the number associated with each arc represents the distance cost or time of travelling
along that particular segment of the journey The terms travelling and journey are used loosely
12
5
because many important applications of the shortest route model are unrelated to travel. In a
follow up exercise to this section we will see the application of this model to an equipment
replacement problem
Simple observation and counting indicate the exercise of five distinct paths through the network
and reveal the optimal path given by I-II-VI-VIII, with a total distance of 8.In typical
applications, the number of paths is too great to solve by enumeration; hence there is real need
for procedures that efficiently solve this type of problem. Although other more efficient
procedures exist for the shortest route problem, the model allows the simplest dynamic
programming formulation to be represented and so its a good place to start.
As mentioned earlier, the backward recursion approach solves a dynamic programming problem
by analyzing the last stage first. The result of the analysis is the definition of optimal policies
(decisions) which are contingent on the state of the system when entering the final stage .In the
shortest route problem backward recursion will focus the third leg of the tripand determine the
best destination node (this must be node VIII) given ones location at the beginning of the final
leg.
The backward recursion approach the reaches back to incorporate information from the previous
stage. The result of stage 2 analysis is a set of policies that are optimal for the last two stages of
the problem ,contingent on the state of the system when entering stage 2.In the shortest route
problem the backward route problem ,the backward recursion method reaches back to leg 2 of
the trip and determines the best possible sequence of paths to follow for the rest of the trip given
ones location prior to leg2.The final phase of the analysis incorporates information regarding
leg1 of the trip, resulting in an optimal sequence of paths for the entire journey.
Let us now illustrate this approach.
Leg 1 (stage 3)
Leg 2 (Stage 2)
Leg 3(Stage1)
12
6
6
V
II
VI
VI
II
7
3
II
I
VII
IV
As we have seen dynamic programming decomposes this problem into three stages, one for
each leg of the journey. Note that nodes are useful in identifying where one is located prior to
or following the completion of a leg of the journey. For example if path II-VI is followed, the
location prior to leg 2 is node III and the location at the completion of this leg is node VI. Node
vi in this instance would be the location prior to the starting point for the next leg of the journey.
Given where one is located following any leg of the trip ,its simple to illustrate how a decision
is made using a recursive equation in the context of Bellmans principle of optimality
.Consider the third leg of the trip and the only end point for this portion of the trip(node
VIII).If we found ourselves at node V the optimal (and only) path to node VIII would be VVIII. Similarly, VI-VIII and VII-VIII are the optimal paths from nodes VI and VII, respectively.
But what if we found ourselves at node II? Where do we go from there? To answer this question,
we must solve a sub problem.
The optimal path from node II must minimize the sum of the distance to the next node plus the
optimal distance from the next node to the end point. In this case there are two alternatives to
consider:
12
7
From Node II
Alternative paths: II-V and V-VIII or
II=VI and VI-VIII
Distance travelled: 6 and 4 =10
2 +
1 = 3
II=VI and VI-VIII

2 + 1= 3
Path II VI VIII is the best with a distance of 3 .Further we store this information for future
reference. If we ever find ourselves at node II, we automatically know that the optimal path from
node II VI-VIII with a distance of 3
Similarly, the optimal path from node III is III-VII VIII with a distance of 7.This is identified
by comparing the following alternatives.
From node III
Alternative paths: III-VI and VI-VIII or
Distance travelled:
7+ 1 = 8
III-VII and VII- VIII

4 + 3 = 7
From node IV
Alternative paths:
IV-VII and VII-VIII
Distance travelled:
5 +
3 = 8
From node IV ,the optimal path IV-VII-VIII with a distance of 8 .We have now determined the
optimal (minimum distance)paths for the last two legs of the trip given any location prior to leg
2.
We now reach back and incorporate information pertaining to leg 1.If we take path I-II, we
will travel a distance of 5.In our second stage of analysis ,we decided that we would take II-VIVII for a total distance of 8.The three paths from node I can best be considered in a table.
12
8
Total
Optimal
Path
Distance
Decision
from
Optimal
Distance
Distance
from
from
Node I
to
next
Next
next
node
Node
to
Node VIII
Node
I-II
II-VI-VIII
8*
I-III
III-VII-VIII
10
I-IV
12
IV-VII-VIII
The best decision in this table is I-II with a total distance of 8.The other alternative s involves
distances of 10 and 12.
This example can also be formulated using our problem solving framework. As we go through
the formulation steps, we will begin to develop generalized notation common to dynamic
programming models.
1. Verbal Statement of the problem.
Minimize the distance traveled from node I to node VII
2. Decisions.
.a
Verbal statement
Paths to follow between node I and node VIII.

b. Mathematical Definition
xij=
if arc chosen from node I to node j,
0 Otherwise.
12
9
Criterion.
a. Verbal Statement
Total distance
b. Mathematical Statement
Let tij be the distance between nodes I and j.
Minimize
Z= g(xij) = tI,II xI,II +tI,III +XI,III + tI,IV XI,IV +..+tVII,VIIIXVII,VIII
Using the notation of backward recursion and Arabic numerical,
Minimize
Z= f3(1)
Where
Fi(j) =min tjkXjk +fi-1(k)
and
f0(j) =0
Tabular approach
For many dynamic programming problems, the analysis can be organized and displayed within
tables, one for each stage of analysis. Table 2 below displays the tabular solution to the shortest
route problem. For any given table (stage) the following elements exist. One row corresponding
to each possible entering state for that stage.
One column corresponding to each decision alternative for that stage. The values in these column
reflect the cumulative return through that stage of analysis, or fi =ri + f* i-1,where f* i-1
represents the optimal cumulative return through stage i-1
Two columns that define the optimal policy given the entering state for the stage.
One column defines the optimal decision, and the other column, the cumulative return associated
with making the optimal decision.
13
0
TABLE 2. Tabular solution to Shortest Route problem
Decision
Entering
Travel to Node
Optimal Policy
f1*
X1
X1*
State,S1(travel)
From node)
VIII
V
VI
VII
Cumulative
Decision
4 + 0 = 4
VIII
1 + 0 =1
VIII*
3 +
0 =3
Distance
4
1
3
VIII
Stage (leg 2): Cumulative distance through stage 2 =Distance for stage 2 + Optimal
cumulative
Distance through stage 1 (f2 =r2 + f1*)
Decision
Entering
Travel to Node
Optimal policy
f1*
X2
State,s2(travel
V
VI
cumulative
VII
From node
x2*
Decision
6 + 4
=10
2+ =1
=3
VI*
Distance
3
13
1
TOPIC 6.
INTEGER AND ZERO ONE PROGRAMMING.
If fractional or continues values for decision variables are inappropriate or undesirable, then we
need to work with integer variables. In some applications integer variables are restricted to
values of zero or one and termed zero one or binary variables .In practice binary variables are
quite common because they represent frequent two-choice decisions (to build or not to
build?)Integer programming is the branch of mathematical programming that explicitly takes
integer variables into consideration.
THE NATURE OF INTEGRER PROGRAMMING.
This section elaborates on some charaterists of integer programming, revisits the air cargo
problem first presented in example 4.1 and presents a geometric perspective of the integer
programming model.
Characteristics of integer programming.
The important body of knowledge called integer programming (IP) addresses the problem of
optimizing an objective function subject to constraints, where all (or some) variables are integer.
If all variables are binary, then the term binary or zero programming applies. If the objective
function and structural constraints in an IP problem are all linear, its customary to talk about
Linear integer programming; otherwise we have nonlinear integer programming.
You should recognize that the transportation and assignment models are both examples of IP
models. As long as the transportation problem integer, an all integer optimal solution is
guaranteed.
The transportation problem is an example of a pure IP problem. Similarly, the t typical
assignment problem is an example of
a 0-1 programming problem. If a linear IP problem
has the special structural characteristics of these models, the specialized solution procedures
presented in chapter 7 are appropriate.
Realizing that linear IP problems are special cases of LP problems, you should agree that the
optimal continues (LP) solution to an IP maximization (minimization) problem will always be
greater (less) than or equal to the optimal integer solution Both LP and IP problems start with
the same area of feasible solutions. However, the integer requirement is more restrictive and
usually reduces the feasible solutions space. The integer requirement never results in an
increased set of feasible solution points
.Thus the optimal solution to an IP
problem
can never be better than the solution to its continues counterpart. .
13
2
Over the years many IP solution algorithms have been developed and these guarantee optimal
integer solutions .Although they do not have the shortcomings associated with heuristic
procedures ,such as rounding LP solutions these algorithms do exact a price :General IP
algorithm are computationally costly. For example an IP model with several hundred variables
is likely to cause a syndrome in analysts that we might call computational anxiety. By way of
contrast, LP models with several thousand variables and constraints hardly cause a murmur.
Computational anxiety comes from the combinatorial nature of the integer problem. With 20
zero- one variables there are 2020 or more than one million possible solutions to examine
fortunately, special IP algorithms have been developed to exploit the special structure found in
many IP problems, there by significantly reducing computational time.
As you study the formulations in section 8.2 and 8.3, keep in mind the twin issue of computation
difficulty and search of special structure. A relatively non-technical overview of solution
algorithms and their performance.
Example 8.1 CARGO, AGAIN.
We can illustrate some solutions issues by referring to the air cargo problem presented in chapter
4 through 6. The modified problem, as written using an IP format has this form;
Integer and zero-one programming
Maximize
Z=20x1+10x2
Subject to
5x1+4x2=24(volume)
2x1 +5x2=9(weight)
Xj= non-negative integers
Or xj=0,1,2,.
for j=1,2
For all j
Where x1 and x2 represent, respectively, the number of containers of beef and pork to be shipped
in a cargo plane subject to volume and weight constraints. Note that the only difference between
LP formulations and pure IP formulations and is the replacement of the no negativity condition
(xj=0) by the condition of nonnegative integers the optimal continuous (LP) solution
recommended the shipment of 4.8 containers of beef (x1) and no containers of pork (x2). The
maximum profit was $96(100s).This solution assumes that 0.8 of a container can be shipped,
which in reality is not possible. The problem is a pure IP model, since we are not restricted to
13
3
shipping whole containers of meat. We might therefore suggest that simple rounding of
continuous solutions will provide an optimal integer solution. however, by rounding of x1up to 5,
verify that the volume constraint is violated and the solution (x1=5,x2=0) is infeasible and
integer .Rounding down to x1 to 4 , the solution (x1=4,x2=0) is feasible and integer but , solution
occur at x1=4 and x2=1 with resulting profit of $90(100s)
This example shows that, although simple rounding of optimal continuous solutions is appealing,
optimal feasible results are not necessary achieved. In the optimal integer solution in the rounder
down version. Moreover the complexity exhibited is rounding continuous solution in small
problems can become overwhelming in large scale problems. It is also important to note that
without exhaustive enumeration of all combinations of integer-valued solutions or some other
ways to assure optimality, rounding offers no signal that we are even close to the optimal IP
solution.
Geometric perspective
For problems with two decision variables, a graphical approach lends itself very well to
explaining the nature of integer solution .figure 8-1 portrays the solution to the air cargo
problem. The optimal continuous solution occur at point c. notice that lattice marks (+) have
been used to identify the feasible set of integer solution points. Since the optimal continuous
solution found at point c is non integer, the objective function z must be moved parallel to itself
towards the origin until it intersects a feasible integer solution point. The such point is b which
occurs at x1=4, x2=1. Thus point b is the optimal integer value .again notice what happens when
we round the optimal continuous solution. The difference in values for z between the optimal
continuous and optimal integer solution is often called the cost of indivisibility. The difference
in this example 96-90 = $6(100s)- represents the opportunity cost of being forced to assign
integer rather than continuous values to basic variables in the optimal solution.
13
4
FIUGURE 8-1 Graphical solution to Air cargo problem
10
Z=96 (optimal continues solution)
Z= 90 (optimal integer solution)
b
c
d
10
13
5
Branch and Bound Algorithm

The branch and bound algorithm is suited for pure integer mixed integer, and 0-1 problems. It
uses as its starting point the optimal simplex solution to the original problem. If this continues
solution
does not satisfy the integer requirements, then the following ideas are
implemented.
Branching. This operation partitions the solution space into subspaces, where each subspace is
a unique LP problem identified to the original except for added constraints that define the
subspace. This procedure eliminates portions of the solution space that fail to satisfy the
integer requirements without omitting any feasible integer solutions .The partitioning process is
called branching because a diagram of
the process gives the semblance of a tree with
branches(see figure 8-7)
Bounding .The optimal simplex solution for the maximization (minimization) problem in a
given subspace provides an upper (lower) bound on the z-value for any integer optimal solution
within that subspace. The use of bounds promotes the elimination of clearly non optimal
subspaces and eventually guarantees the location of the optimal integer solution. (If it exists)
Example 8.12 Branch and-Bound Solution.
Perhaps the easiest way to understand the nature of the branch and bound method is to
illustrate by example. The geometric representation of an integer programming problem is
shown in figure 8-5 .Note that the optimal continues (LP) solution
occurs at point
b
with neither variable
assuming an integer value(x1=4.809,x2=1.817,and z=355.890)
The branch and bound algorithm next considers an integer variable with a non integer value5
.For instance we might select X1=4.809.It stands to reason that the optimal integer solution will
have an integer value assigned to x1 such that x14 or and X1 5.The non integer region between
x1=4 and x1=5 is not feasible in the integer in the integer version of the problem. Consequently,
the branch and-bound algorithm branches from the original problem, or partitions it into two
further constrained problems which eliminate this non integer area.
Figure 8-6 illustrates the graphic representation of these two problems. For the sake of reference,
we will number the original problem as problem 1 and Descendant problems as problems 2,3
and so forth.
Solving each of the newly formed problems by the simplex method as if they were continues
problems yields the following solutions:
13
6
Problem 2
Z=349.000
X1= 4.000
X2=
2.100
problem 3
Z=341.390
x1=
x2 =
5.000
1.571
Again, neither solution is all-integer, although both indicate integer values for x1.Since we
excluded no feasible integer solution points in creating these two problems, the values of
349.000 and 341.390 act as an upper bounds for any feasible integer solutions. That is 349.000
is an upper bound for solution descendants from problem 2 since any descendant problems will
have additional constraints .Similarly 341.390 is an upper bound for descendants from problem
3.
The branch and bound algorithm works on the principle of searching problem subsets to find
feasible solutions, but discarding (not searching) subsets that cannot produce results superior to
those already attained. Continuing the analysis, we could branch or partition from either problem
2 or problem 3 in an effort to integerize x2.However, the potential associated with partitioning
from problem 2 is more promising. This is because the upper bound on any descendant problem
that further constraints problem 2 is z =349.000 whereas the best that can be expected from
descendants of problem 3 is z=341.390.Thus the next step begins with problem 2 by adding
branching constraints x22 (problem 4)and x2 3(problem 5)In this subset of problems, the non
integer area between x2=2 and x2=3 is excluded ,since x2 =2.1 in the solution to problem26.
Figure 8-7 summarizes in the form of a tree the remaining steps leading to the identification of
the optimal integer solution. In problem 4 an all-integer solution is identified with an objective
function valued at 340. In problem 5 ,the other descendant problem from problem 2 ,the optimal
solution is not integer. However since any descendant problems cannot produce z values greater
than 327.120, we can discard problem 5 and prune its descendants from further consideration.
13
7
problem (1)
Z=355.890
X1=4.809
X2=1.817
Problem (2)
problem (3)
Z=349.000
z=341.390
X1= 4.000
x1= 5.000
X2=
2.100
x2=1.571
We might be inclined to conclude that the optimal integer solution has been found. However,
there is potentially a better solution from one of the descendants of problem
3. The value of z=341.390 is greater than the 340 found in problem 4. Therefore it is necessary to
partition solution 3 into problem 6 and 7 by adding the constraints x2=1 and x2=2, respectively.
As we see in figure 8-7 the results for these two problems are inferior to the solution found in
problem 4. Any descendant from problem 6 would have optimal values for z no greater than
307.76, and any descendants of problem 7 would be infeasible. Thus the optimal integer solution
is x1=4, x2=2 and z=340.
The problem boxes in the tree of figure 8-7 are often called nodes. A branch is terminated or
pruned whenever a node presents (1) an integer solution (2) an infeasible solution or (3) a
solution with a z-value inferior to any current integer solution .
Finally as mentioned earlier the branch and branch algorithm is suited for both pure and
mixed integer problems. Referring to figure 8-7 we see that had x1 been the only required integer
13
8
variable, the optimal solution would have been that found in problem 2 with z=349.000 x1 =4 and
x2 =2.100
The diagram in figure 8-8 summarizes the branch and-bound algorithm used in Example 812.Study it carefully and trace through the problems in figure 8-7 to verify that this is indeed the
procedure we used.
The branch and bound algorithm in our example is not the only one available .Other branchand-bound algorithms differ with respect to the branching and bounding rules ,tree representation
and other esoteric The literature is lively with the search for branch-and-bound algorithms that
are kind to computer storage and processing requirements,.
In summary, the branch and bound algorithm provides an intelligent provides an intelligent
search of the feasible solution space. As opposed to the brute force approach of complete
enumeration, the search is restricted to partial enumeration of promising integer solution points.
However, you should not conclude that branch and bound algorithms always produce optimal
solutions with computational ease, yes but not absolute ease a 99.9 percent reduction of 2
quintillion potential solutions is still a big number ,we reconsider this issue in section 8.6
13
9
Start
Integer
requirement
satisfied in
problem A ?
requiremeents
yes
Bound Rule:From all feasible problems

presently not having descendants(those
that define nodes having no departing
branches)determine which has the best
value of the objective function.Rename this
problem A
14
0

Operations Research II, Topic 1-6

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OPERATIONS RESEARCH II

CMS 201-A: Operations Research I

Solve linear programming problems using spreadsheets, LINDO and LINGO.

Panneerselvam, R. Operations Research: Prentice Hall of India, New Delhi, 2002.

Winston, Wayne L.; Operations Research 3rd edition; International Thomson

Oakshoft, Les: Essential Quantitative Methods for Business, Management and

TOPIC 1: LINEAR PROGRAMMING II

PRINCIPLE OF SIMPLEX METHOD

Computational procedure in the simplex method is based on the following fundamental

Slack Variable. A variable added to the left-hand side of a less-than or equal to

An inequality of the less-than or equal-to type is transformed into an equality by the

Suppose in a particular problem, the ith constraint appears as

By adding a suitable non-negative variable si to the left-hand side, the inequality

An inequality of the greater-than or equal-to type is transformed into an equality by

ai1x1 + ai2x2 ++ ainxn - si = bi ; i = 1,2,, m.

Basic Solution. For a system of m simultaneous linear equations in n variables (n>m),

Basic Feasible Solution. A basic feasible solution to a feasible solution to a linear

When several variables are present in a linear programming problem it is no possible

Maximize Z = c1x1 + c2x2 + + cnxn

am1x1 + am2x2 ++ amnxn bm

Thus we can restate the problem in terms of equations as follows:

Maximize Z = c1x1 + c2x2 + + cnxn + 0s1 + 0s2 +0sm

am1x1 + am2x2 ++ amnxn +sm = bm

INITIAL SIMPLEX TABLEAU

loss per unit

Determine the departing variable or variable to be replaced next we proceed to

New row numbers = Number in old rows

Corresponding number in the

Determine the optimal product-mix and the maximum contribution. Unit

Formulation of suitable LP Model.

320 (marketing constraint)

Converting the Constraints to Equations.

Setup the Initial Solution.

Develop Initial Simplex Tableau

C1 column shows objective coefficients corresponding to basic variables in the

Net Evaluation (or Index) Row (Cj-Zj) 6

The number in the Zj row

The number in the net evaluation row, under each

Zj = 0 (Cj of s1) x 1 (i.e, coefficient of x1 in s1 row, or a11)

FIRST SIMPLEX TABLEAUS COMPLETED

Net Evaluation (or Index) Row: Cj Zj

Tests for Optimality

s1 row : 720 hrs/1 hr per unit = 720 units of x1

TABLE 3.3: FIRST SIMPLEX TABLEAU CONTAINING PIVOT COLUMN, PIVOT

Developing Second Simplex Tableau.

where fixed ratio =

Old row number in pivot column

720 320 x 1 = 400

780 2 x 320 = 140

The new revised improved solution is shown in Table 3.4 below:

TABLE 3.4: SECOND SIMPLEX TABLEAU (Non-optimal Solution)

Net evaluation (or index) Row: Cj Zj

Applying the following elementary row operations:

TABLE 3.5: THIRD SIMPLEX TABLEAU (Non-optimal Solution)

Net evaluation (or index) Row: Cj Zj

(i) R1 (new) R1 (old), (ii) R2 (new) R2 (old) (-2) R1 (new), and

TABLE 3.6: FOURTH SIMPLEX TABLEAU (Optimal Solution)

Net evaluation (or index) Row: Cj Zj

Thus for s1 (machine hours) =

280 + 2(220) 720

2(280) + 220 780

Contribution = 6x1 + 4x2

Opportunity cost. The Zj indicate the opportunity cost. If we do not utilize