University of the Philippines

School of Economics
Economics 162
Managerial Economics
Exercise No. 2

J. Abrenica 24 January 2019

Note: This is not a graded exercise. For class discussion only.

Jason Bourne makes two models of its product – regular and deluxe. Both models
are assembled from an identical frame. The regular model differs from the deluxe
model only in terms of the finish work, which takes 5 hours of labor on the regular
version and 8 hours on the deluxe. In planning the current month’s production,
Jason’s manager finds that only 12 frames and 80 hours of finishing labor are
available. The supply of all other required materials and labor is unlimited. Any
number of its product can be sold at a profit of P10 per regular model and P15 per
deluxe model. The manager wants to maximize Jason’s profits.
(a) Formulate the manager’s problem as a linear program.
(b) Solve the linear program graphically.

The circumstances have changed to reflect an order for 3 new deluxe models so that
production must now include at least 3 units of that product. Further, a plant
remodeling has reduced the work area such that at most 9 regular models can be
made.
(c) Formulate the revised linear program.
(d) Suppose that a special promotion of deluxe models reduces the unit profit of that
product from P15 to P8. Express the new objective function. Then solve the problem
graphically to find the optimal solution.
(e) The promotion in (d) is switched to regular models, which reduces the unit profit
for that product from P10 to P5. Express the new objective function. Then using a
new graph, solve the problem to find the optimal solution.
(f) Identify on your graph the most attractive corners from the original problem and
those found in (d) and (e). What may you conclude regarding the most attractive
corner and the changes in unit profit?

Reconsider the original problem of Jason’s manager. As given, the regular model
requires 5 hours of finishing labor and 1 frame. The deluxe version requires 8 hours
and 1 frame. Only 12 frames and 80 hours of labor are available. The unit profits are
P10 for regular model and P15 for deluxe.
(g) Formulate the dual linear program. State in words the meaning of your dual
variables.
(h) Solve the dual graphically.

Now suppose that Jason makes a third product – the super model – at a per unit
profit of P25. Each unit requires 10 hours of labor and 1 frame.
(i) Formulate Jason’s new primal linear program.
(j) Formulate the dual linear program and solve it graphically.
(k) Suppose that Jason can sell a fourth model – the cheap model – at a per unit
profit of P6. This model requires 2 hours of labor and 1 frame. Should any cheap
model be made?

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