HW Set 01

Eli Orchid can manufacture its newest pharmaceutical product in any of three processes. One costs
$14,000 per batch, requires 3 tons of one major ingredient and 1 ton of the other, and yields 2 tons of
an output product. The second process costs $30,000 per batch, requires 2 and 7 ton of the ingredients,
respectively, and yields 5 ton of the product. The third process costs $11,000 per batch, requires 9 and
2 tons of the ingredients, respectively, and yields 1 ton of the product. Orchid wants to find the least
costly way to produce at least 50 ton of the new product, given that there are 75 tons of ingredient 1
and 60 tons of ingredient 2 on hand.

The following LP model solves the problem

Min 14x1 + 30x2 + 11x3

S.T. 2x1 + 5x2 + 1x3 >= 50

3x1 + 2x2 + 9x3 <= 75

x1 + 7x2+ 2x3 <= 60

x1, x2, x3 >= 0

Answer each of the following sensitivity questions after running the model in SOLVER.

a) What is the marginal cost of production per ton of output? [by how much is the total cost going
to increase if one more ton of the product is produced?] 7555.56 $/ton
b) How much would it cost to produce 70 tons of the new pharmaceutical products?
311.11+7.556*(70-50)=462.22 thousand USD
c) How much would it cost to produce 100 tons of the new pharmaceutical products? can not
produce 100 tonn with the available ingredients
d) How much should Orchid be willing to pay to obtain additional 20 tons of
e) ingredient 1? How about ingredient 2? for ing. 1 the same cost. for ing. 2 300 thousand using only process 2
f) How cheap would the third process have to become before it might be used in an optimal
solution? 11-5.666=5.333 thousand USD
g) How much would the cost of the 50 tons of product increase if process 2 actually cost
(i) $32,000 per batch? 326.67 thousand USD
(ii) $39,000 per batch? 350 thousand USD
h) How much would the cost of the 50 tons of product decrease if process 1 cost $13,000 per
batch? If it cost $10.000 per batch? 305.556 thousand USD / 250 thousand USD
i) If additional 10 tons of ingredient 1 and 5 tones of ingredient 2 become available, what will
happen to the total cost? 3.111+0*10-1.111*5=305.556 thousand USD
j) Challenge: Suppose that the engineering department is thinking about a new process that
produces 6 tons of the product using 3 tons of each of the two original ingredients. At what
cost would this new process be economic to use?
k) Challenge: Suppose that the three processes actually use 0.1. 0.3, and 0.2 ton per batch of a
third ingredient but we do not know exactly how much of it is available. Determine the
minimum amount needed if the optimal solution is not to change (the current optimal
quantities used of each ingredient remain unchanged).