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    Subham Jain
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    The optimal solution to the portfolio problem allocates the full budget to shares of stock A, yielding a total

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    The optimal solution to the portfolio problem allocates the full budget to shares of stock A, yielding a total

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    © All Rights Reserved
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    1 views13 pages

    Homework 2

    Uploaded by

    Subham Jain
    The optimal solution to the portfolio problem allocates the full budget to shares of stock A, yielding a total

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 13

    Variables Objective Function Coefficients Pine Wood Constraint

    x (Standard Desks) 250 70


    y (Deluxe Desks) 350 50
    Pine Wood Available 5000
    Oak Wood Available
    Labor Hours Available
    Non-negativity
    Oak Wood Constraint Labor Hours Constraint Description
    0 10 Objective Function
    20 18 Maximize Z = 250x + 350y

    750 Constraints
    400 Pine Wood: 70x + 50y ≤ 5000
    Oak Wood: 20y ≤ 750
    Labor Hours: 10x + 18y ≤ 400
    Non-negativity: x ≥ 0, y ≥ 0
    Objective Function
    Maximize Z = 250x + 350y

    Constraints
    Pine Wood: 70x + 50y ≤ 5000
    Oak Wood: 20y ≤ 750
    Labor Hours: 10x + 18y ≤ 400
    Non-negativity: x ≥ 0, y ≥ 0
    Variables Price Per Share Expected Return Per Share Total Budget Constraint
    x_A (Stock A) 12 8 2500
    x_B (Stock B) 15 7 2500
    x_C (Stock C) 30 11 2500
    Total Budget Available 2500
    Non-negativity & Integrality
    Objective Function
    Maximize Total Return = 8x_A + 7x_B + 11x_C

    Constraints
    Budget: 12x_A + 15x_B + 30x_C ≤ 2500
    Non-negativity: x_A ≥ 0, x_B ≥ 0, x_C ≥ 0
    Integrality: x_A, x_B, x_C are integers
    Optimal Solution

    Description Value Unit

    Standard Desks (x) 40 desks


    Deluxe Desks (y) 0 desks
    Profit 10000 USD
    Constraint Analysis
    Resource Constraint Value Used Slack
    Pine Wood 5000 2800 2200
    Oak Wood 750 0 750
    Labor 400 400 0
    Decision Variables Price per Share Return per Share Number of Shares Total Cost
    Purchased

    x 12 8
    y 15 7
    z 30 11
    #VALUE! #VALUE!
    Total Return Budget Constraint

    $2,500
    1. The reduced cost of -100 for deluxe desks suggests increasing their production could raise the profit by $100 per
    2. Since pine isn't a binding constraint (shadow price is $0), a 25% reduction in pine won't affect the optimal solutio
    3. Allowing 50 extra work hours at $18/hour is beneficial because the shadow price of labor is $25, indicating each
    4. Increasing the profit for standard desks to $280 raises total profit by $1,200, as it adds $30 to each of the 40 desk
    5. Decreasing the profit for standard desks to $190 decreases total profit by $2,400 and might change the productio
    reduced cost.
    e the profit by $100 per unit until constraints are affected.
    ffect the optimal solution, given current usage is below the maximum.
    r is $25, indicating each additional hour of labor adds $25 to profit.
    30 to each of the 40 desks produced.
    ght change the production balance due to the profit drop exceeding the current
    Return on stock B for full investment
    - Currently, no shares of stock B are purchased (Final Value = 0), with a reduced cost of -3. To invest fully in stock B
    (Objective Coefficient) must be increased enough to make its reduced cost zero or positive. With an allowable incre
    return on stock B is increased by at least 3, from 7 to 10, it could potentially become part of the optimal solution.
    Return increase for stock C for full investment**:
    - Similarly, no shares of stock C are purchased, and the reduced cost is -9. For full investment in stock C, the retur
    at least the reduced cost of 9 to make it zero or positive. Therefore, the return on stock C must increase from 11 to

    Shadow price for the total investment constraint


    - The shadow price of 0.666666667 means that for every additional dollar available to invest, the objective value
    total return) would increase by approximately 67 cents. If the student can borrow $1,000 at 8% interest per year, s
    $80 cost. Since the shadow price suggests an increase of $667 in the objective value for an additional $1,000 invest
    benefit would be $667 - $80 = $587. Therefore, borrowing would be recommended because the return is greater t
    expense.
    . To invest fully in stock B, its return
    . With an allowable increase of 3, if the
    of the optimal solution.

    ment in stock C, the return must increase by


    must increase from 11 to at least 20.

    vest, the objective value (presumably the


    at 8% interest per year, she would incur an
    additional $1,000 investment, the net
    se the return is greater than the interest

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