Lecture 7

Question 1

What is purpose of limiting factor?

What is two type of limiting factor?

Answer 1

• To maximise total contribution ( also profit)

Sales demand ( external factor)
Production constraints ( internal factors)
E.g labour , materials and capitals

Question 2

What if there one limiting factor how do we maximum contribution? 5 steps

E.g what is optimal production plan?

Answer 2

5 steps
1. Identity the one limiting factor
2. Calculate the contribution per unit for each product = sp - vc
3. Calculate the contribution for limiting factor for scarce resource
4.rank the products from high to low
5. Allocate the scarce resource using this ranking

Example
1. Identify the limiting factor
- machine hour it might say t in the exam or it just have to see between machine and labour.
- look at the demand per week then
For each compnay do machine per hour x demand you will get separate answers. And then add it all together you will see why it is a limiting factor.

2. Calculate contribution per unit: sp - vc
   Do it for each company.
3. Calculate the contribution unit for limiting factor
   Look at the contribution per unit for the from previous company and divide it by limiting factor ( machine hours)
4. Rank them for high to low
   - whatever is the highest has priority over all the other ones.
5. Then go back to the table then
   And then look at winning company then do there limiting factor ( machine hour ) x demand
   And then keep adding it until you run out of time for e.g machine hour can only be on for 1,000 per week and then the one you run out with you do that number you have left divided but its machine hour.
6. Lastly your optimal production plan would be
   Company 1 how many units you can produce, company 2 how many units you can produce , and last compnay how many units you can produce then you add all of that together.

Question 3

What do you do if you have more than 1 limiting factor?

Answer 3

1. Define unknown in terms of symbols
2. Formulate equation for the contraints
3. Formulate an equation for the objective
4. Graph the constraints and objectives
5. Find optimum solution

• haven’t learnt it cuz it quite difficult.

Question 4

What is shadow price?

Answer 4

• most extra that would would be prepared to pay for that one extra unit of limited resource.