No Workbook Accompanies This Word Document. Start with a New Workbook. Do Not Put More

No workbook accompanies this Word document. Start with a new workbook. Do not put more than one question in the same sheet. Read each question carefully and use the attachment: ECON_PROBLEM EXAMPLE to help solve the problems below. The answers to the problems below must be format or be shown like the examples on the ECON_PROBLEM EXAMPLE attachment.

1. This problem is similar to #13-4 but simpler (See attachment: ECON_PROBLEM EXAMPLE FOR HELP WORKING ON THIS PROBLEM).

Kite 'N String manufactures old-fashioned diagonal and box kites from high-strength paper and wood. Each diagonal kite nets the company a $3 profit, requires 8 square feet of paper and 5 feet of wood. Each box kite nets $5, requires 6 square feet of paper and 10 feet of wood. Each kite is packaged in similar containers. This week Kite 'N String have 1500 containers, 10000 square feet of paper and 12000 feet of wood.

1. How many of each type should Kite 'N String make to maximize profit? What is the maximum profit?

2. Which constraint(s) is/are binding?

3. If an additional 2000 square feet of paper is available, how many of each type to make to maximize profit? What is the maximum profit?

4. Which constraint(s) is/are binding for part 3?

2. This problem is similar to # 11-7 (See attachment: ECON_PROBLEM EXAMPLE FOR HELP WORKING ON THIS PROBLEM).

Sapphire Weekday is a restaurant chain and it allows three franchising option for investors. The full franchising option charges an investor $100,000 every year but allow the investor to keep all the profit. The half franchising option charges an investor $30,000 and allows the investor to keep 50% of the profit. The fixed franchising option pays an investor $25,000 every year with no profit sharing.

Joan Joyce is considering opening up a Sapphire Weekday franchise in Haleiwa. She estimated that if the business is good, the profit of the restaurant would be about $200,000, but if the business is bad, the profit would only be about $100,000. Forecast indicates that 30% of the time the business will be good and 70% it will be bad. Which would be her best option based on the following criterion?

1. Average payoff 2. Maximax (aggressive)

3. Maximin (conservative) 4. Minimax regret (opportunity loss)

5. Expected value

3. Hint: Use binary variables 0/1 as in #14-3 (See attachment: ECON_PROBLEM EXAMPLE FOR HELP WORKING ON THIS PROBLEM). Perry Enterprises is considering a number of investment possibilities. Specifically, each investment under consideration will draw on the capital account during each of its first three years, but in the long run, each is predicted to achieve a positive net present value (NPV). Listed in the accompanying spreadsheet are the investment alternatives, their NPVs, and their capital requirements, and all figures are in thousands of dollars. In addition, the amount of capital available to the investments in each of the next three years is predicted to be $15 million each year. The goal of Perry Enterprises is the maximize the total NPV, which is the sum of NPVs of the investments chosen. 1. Assume that any combination of the investments is permitted, which ones should Perry choose to maximize NPV? 2. What is the value of the total NPV given by your answer in part 1? 3. Suppose that the expansion investments (one-phase expansion and two-phase expansion) are mutually exclusive (i.e. only one of them can be made). How does this alter the solution in part 1? 4. What is the value of the total NPV in part 3? 5. (Ignore parts 3 and 4 in this question.) Suppose that the test market cannot be carried out unless the advertising campaign is also adopted. Which investments should Perry choose to maximize NPV given this extra condition? 6. What is the value of the total NPV in part 5?

Problem 3, parts 3,4,5,6 would require additional constraints. Look at the table below; a couple of the constraints there would help with those parts.

Modeling Logical Conditions Using Binary Variables Logical Condition Constraint Model Form If A, then B B ≥ A or B - A ≥ 0 If not A, then B B ≥ 1 - A or A + B ≥ 1 If A, then not B B ≤ 1 - A or B + A ≤ 1 At most one of A and B A + B ≤ 1 If A, then B and C (B ≥ A and C ≥ A) or B + C ≥ 2A If A and B, then C C ≥ A + B - 1 or A + B - C ≤ 1