question

Optimization

answer

finding the best possible answer to the problem at hand

question

3 questions of Optimization and describe what they are trying to find

answer

1. Goal/Objective: What are we trying to accomplish?

2. Decision Variables: What is/are the decisions?

3. Constraints: What rules do we have to obey along the way?

2. Decision Variables: What is/are the decisions?

3. Constraints: What rules do we have to obey along the way?

question

Optimization Steps

answer

1. Formulate problem: decision variables, obj. function ($P x A) + ($P x B), constraints

2. Check whether we can satisfy the demand: if so compute profit

3. If Demand can't be satisfied: identify the bottleneck, compute bang for buck, and identify preferred product

4. Compute the values of Decision Variables: how many units to make of each product

-conduct sensitivity analysis

2. Check whether we can satisfy the demand: if so compute profit

3. If Demand can't be satisfied: identify the bottleneck, compute bang for buck, and identify preferred product

4. Compute the values of Decision Variables: how many units to make of each product

-conduct sensitivity analysis

question

Optimal Production Quantities

answer

How much of each product we can make that maximizes profit

question

Objective Function Value (OFV)

answer

value of the objective function when your produce optimal produce quantities (multiply profits to their respective optimal unit output and sum)

question

Sensitivity Analysis

answer

due to market conditions, profit per unit and resource availability may change

question

If there is a decrease in objective function coefficient what will happen?

answer

the meaning and use of "allowable" decreases

-Objective function Coefficient (OFC): the profit changes

-Objective function Coefficient (OFC): the profit changes

question

Range of no change

answer

changes in profit value that does not change our preferred profit

question

allowable decrease

answer

decrease in coefficient (profit) allowed before change in preferred product

-for other products, it is the profit price: cannot go under $0

-for other products, it is the profit price: cannot go under $0

question

Allowable increase

answer

increase in coefficient (profit) allowed before you change your preferred product (for preferred product, it is infinity)

question

Shadow Price (SP)

answer

change in the objective function value for a unit change in right hand side (RHS) of the constraint (resource availability demand)

-change in OFC for a unit change in RHS

-change in OFC/ Change in RHS

-change in OFC for a unit change in RHS

-change in OFC/ Change in RHS

question

Slack

answer

RHS-LHS: leftover resources

-demand SP is in terms of $/unit for demand or change in net profit/ change in # of units

-demand SP is in terms of $/unit for demand or change in net profit/ change in # of units

question

If demand is not met

answer

-there is slack

-SP = $0

-SP = $0

question

If slack >0 the shadow price is --

answer

$0

question

SP tells us

answer

-reservation price

-marginal cost

-max price we should pay

-constraints

-marginal cost

-max price we should pay

-constraints

question

Reservation price

answer

how much we should pay for overtime of bottleneck worker

question

Marginal Cost

answer

cost of producing one additional unit of the resource

-SP is the marginal cost of resources/constraints

-SP is the marginal cost of resources/constraints

question

Max price we should pay

answer

SP+ Current Price

question

What if demand increases, how does OFV Change?

answer

-multiply increase by profit

-decrease by what you lost from ongoing production of the other variable for net increase

-stealing

-shadow price for demand constraint

-decrease by what you lost from ongoing production of the other variable for net increase

-stealing

-shadow price for demand constraint

question

Stealing

answer

reallocating the time from one unit to increase production of the preferred product

question

Shadow price for demand constraint

answer

net increase/change in demand

question

Bottleneck

answer

-decides our profit, output, and product

-resource which limits/constrains other resources to produce their full potention

-resource which limits/constrains other resources to produce their full potention

question

True/False: If Slack = 0, it is the bottleneck

answer

false

question

utilization

answer

-time used in producing # of units/ total time available or # of units produced/ resource capacity

-when utilization =1--%, full capacity

-when utilization =1--%, full capacity

question

Free/Idle Time

answer

total time available- time used to produce # of units

question

Why merge?

answer

-to maximize rev and market dominance

-economies of scale: combine productions to lower marginal costs

-synergies: combine resources

-economies of scale: combine productions to lower marginal costs

-synergies: combine resources

question

Preferred product

answer

=profit/time per unit (whichever is greater for bottleneck resource)

question

Market instinct

answer

to meet the demand of the product with more profit per unit (wrong)

question

"bang for buck"

answer

when analyzing the bottleneck for each product, choose the one whose profit per minute is greater (preferred product)

-profit/time per unit of bottleneck

-profit/time per unit of bottleneck

question

Marginal Cost

answer

(shadow price)

-should not pay resources more than marginal cost

-reduced cost= MR-MC (marginal rev-marginal cost)

-MR=MC (do not produce if MC>MR

-should not pay resources more than marginal cost

-reduced cost= MR-MC (marginal rev-marginal cost)

-MR=MC (do not produce if MC>MR

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