Chapter 4:

Linear Programming:
Sensitivity Analysis and
Interpretation of
Solution
 Learning Outcomes
• Students are able to:
• explain the concept of sensitivity analysis in various aspect especially
in agribusiness problem (C4, CTPS)
• build a simple sensitivity analysis either graphical or computer
solution in excel (P4, NS)
• discuss the changes in the coefficients of a linear programing affect
the optimal solution (A3, LL)
 Introduction
• Sensitivity Analysis is the study of how the changes in the coefficients
of a linear program affect the optimal solution.

• It is often referred to as post-optimality analysis because it is

concerned with how these changes (coefficient of the objective
function and/or right hand side value for a constraint) affect the
optimal solution to the original linear programming problem has been
obtained.
 Introduction
• Sensitivity Analysis is important to decision makers because
real-world problems exits in a changing environment.

• E.g. Price of raw materials change, product demand changes,

companies purchase new machinery, stock prices fluctuate,
employee turnover occurs, and so on.
 Introduction
• In a linear programming model has been used in such an
environment, then some of the coefficients is expected to
change over time.

• Then to determine how these changes affect the optimal

solution to the original linear programming problem.
 Recall the Par, Inc., Problem
Max 10 S + 9 D

Subject to (s.t.)
(7/10) S + D ≤ 630 Cutting and dyeing

(1/2) S + (5/6) D ≤ 600 Sewing

1 S + (2/3) D ≤ 708 Finishing

(1/10) S + (1/4) D ≤ 135 Inspection and packaging

S, D ≥ 0
 Recall the Par, Inc., Problem
• The optimal solution, S = 540 standard bags and D = 252
deluxe bags, was based on profit contribution figures of $10 per
standard bag and $9 per deluxe bag.

• If the price reduction in standard bag from $10 to $8.50, what is

the changes to the company’s profit?
 Recall the Par, Inc., Problem
• Sensitivity analysis can also be used to determine which coefficients in a
linear programming model are crucial.

• E.g. Management believes the $9 profit contribution for the deluxe bag is only
rough estimate of the profit contribution that will actually be obtained.

• If sensitivity analysis shows that as long as the profit contribution for the
deluxe bag is between $6.67 and $14.29, management should feel comfortable
with the $9 per bag estimate and the recommended production quantities.
 Graphical Sensitivity Analysis
• For linear programming problems with two decision variables,
graphical solution methods can be used to perform sensitivity
analysis on

1. Objective function coefficient

2. Right-hand-side values for the constraints
 Objective Function Coefficients
• Let us consider how changes in the objective function coefficients
might affect the optimal solution to the Par Inc. problem.

• It seems obvious that an increase in the profit contribution for one

of the bags might lead management to increase production of that
bag, and a decrease in the profit contribution for one of the bags
might lead management to decrease production of that bag.
 Objective Function Coefficients
• The current optimal solution to this problem calls for producing 540 standard
bags and 252 deluxe gold bags.

• The range of optimality for each objective function coefficient provides the
range of values over which the current solution will remain optimal.

• Managerial attention needs to be focused on those objective function

coefficients that have a narrow range of optimality and coefficients, a small
change can necessitate modifying the optimum solution.
 Objective Function Coefficients
D
Line B (Coincides with the finishing A careful inspection of this graph shows that as long
constraint line 1S + 2/3 D = 708) as the slope of the objective function line is between
the slope of line A and the slope of line B, extreme
Number of Deluxe Bags

point  with S = 540 and D =252 will be optimal.

540
5
Objective Function Line
for 10S + 9D Changing an objective function coefficient will cause
4 the objective function line to rotate around extreme
420
point . However, as long as the objective line stays
(300, 420)
within the shaded region, extreme point  will remain
optimal.
3
252
(540, 252)
Line A (Coincides with the cutting and dyeing
Feasible Region
constraint line 7/10 S + 1 D = 630)

1 2
S
300 540 708

Number of Standard Bags

 Objective Function Coefficients
D
Line B (Coincides with the finishing Rotating the objective function line counterclockwise
constraint line 1S + 2/3 D = 708) cause the slope to become less negative (slope
increased). If the objective function line
Number of Deluxe Bags

counterclockwise enough to coincide with line A, we

540
5 obtain alternative optimal solutions between extreme
Objective Function Line
for 10S + 9D points  and . Any further counterclockwise
4 rotation of the objective function line will cause
420
extreme point  to be nonoptimal. Hence, the slope of
(300, 420)
line A provides an upper limit for the slope of the
objective function line.
3
252
(540, 252)
Line A (Coincides with the cutting and dyeing
Feasible Region
constraint line 7/10 S + 1 D = 630)

1 2
S
300 540 708

Number of Standard Bags

 Objective Function Coefficients
D
Line B (Coincides with the finishing Rotating the objective function line clockwise cause
constraint line 1S + 2/3 D = 708) the slope to become more negative (slope decreased).
If the objective function line clockwise enough to
Number of Deluxe Bags

coincide with line B, we obtain alternative optimal

540
5 solutions between extreme points  and . Any
Objective Function Line
for 10S + 9D further clockwise rotation of the objective function
4 line will cause extreme point  to be nonoptimal.
420
Hence, the slope of line B provides an lower limit for
(300, 420)
the slope of the objective function line.

3
252
(540, 252)
Line A (Coincides with the cutting and dyeing
Feasible Region
constraint line 7/10 S + 1 D = 630)

1 2
S
300 540 708

Number of Standard Bags

 Objective Function Coefficients
• Extreme point  will be the optimal solution as long as

Slope of line B ≤ slope of the objective function line ≤ slope of line A

• Reform the line A and line B, we get

D = -7/10 S + 630 (Line A: Cutting and Dyeing constraint line)
D = -3/2 S + 1062 (Line B: Finishing constraint line)
 Objective Function Coefficients
• Let CS denote the profit of a standard bag, CD denote the profit of a deluxe
bag, and P denote the value of the objective function.

• Using this notation, the objective function line can be written as

P = CSS + CDD

• Writing this equation in slope-intercept form, we obtain

Slope of the
D = P / CD – (CS / CD ) S objective line
 Objective Function Coefficients
• To compute the range of optimality for the standard bag profit
contribution, we hold the profit contribution for the deluxe bag
fixed at its initial value CD = 9.
So, what is the
profit contribution
of standard bag
• So, profit?

(Expression 5.1)
 Objective Function Coefficients
• From the left-hand inequality, we have
or
• Thus,
or
 Objective Function Coefficients
• From the right-hand inequality, we have
or
• Thus,
or
What is the Range
for Deluxe-bag
• Combine the calculated limits for CS profit?

6.3 ≤ ≤ 13.5
 Objective Function Coefficients
• In case where the rotation of the objective function line about
an optimal extreme point causes the objective function line to
become vertical, there will be either no upper limit or no lower
limit for the slope as it appears in the form of expression like

Slope of line B ≤ slope of the objective function line ≤ slope of line A

 Line B (Coincides with the finishing
constraint line 1S + 2/3 D = 708) Objective Function Line • Suppose that the objective
for 18S + 9D
function for Par Inc. problem is
D
18 CS + 9 CD; and the optimal
Vertical Line
solution is 
Number of Deluxe Bags

5 • Rotating the objective function

540
line counterclockwise around
4
420 extreme point  provides an
upper limit for the slope of line
B
3
252
Feasible Region • Rotating the objective function
New Optimal line clockwise results in the
Solution slope becoming more and more
negative, approaching a value of
1 2 minus infinity as the objective
S
300 540 708 function line becomes vertical
Number of Standard Bags (no lower limit)
 Objective Function Coefficients
• Following the previous procedure of holding C D constant at its
original value, CD = 9,
or
 Objective Function Coefficients:
Simultaneous Change
• The range of optimality for objective function coefficients is only applicable for
changes made to one coefficient at a time.

• If two or more objective function coefficients are changed simultaneously, further

analysis is necessary to determine whether the optimal solution will change.

• However, when solving two-variable problems graphically, expression 5.1 suggests

an easy way to determine whether simultaneous changes in both objective function
coefficients will cause a change in the optimal solution.
 Objective Function Coefficients:
Simultaneous Change
• Simply compute the slope of the objective function (-CS/CD) for the new
coefficient values.

• If this ratio is greater than or equal to the lower limit on the slope of the
objective function and less than or equal to the upper limit, then the
changes made will not cause a change in the optimal solution.
 Objective Function Coefficients:
Simultaneous Change
• Consider changes in both of the objective function coefficients
for Par, Inc., problem.

• Suppose the profit contribution per standard bag is increased to

$13 and the profit contribution per deluxe bag is simultaneously
reduced to $8.
 Objective Function Coefficients:
Simultaneous Change
• Recall that the ranges of optimality for CS and CD are
6.3 ≤ 𝐶 𝑆 ≤ 13.5
6.67 ≤ 𝐶 𝐷 ≤ 14.29

• For these ranges of optimality, we can conclude that changing

either CS to $13 or CD to $8 (but not both) would not cause a
change in the optimal solution of S = 540 and D = 252.
 Objective Function Coefficients:
Simultaneous Change
• But we cannot conclude from the ranges of optimality that changing both coefficients
simultaneously would not result in a change in the optimal solution.

• As the extreme point  remains optimal as long as

3 𝐶𝑆 7
− ≤− ≤−
2 𝐶𝐷 10

• If CS is changed to 13 and simultaneously CD is changed to 8, the new objective

function slope will be given by Lower than the limit slope,
= -1.625 the current solution will no
longer be optimal
 Objective Function Coefficients:
Simultaneous Change
• Looking at the ranges of optimality, we concluded that changing either C S to
$13 or CD to $8 (but not both) would not cause a change in the optimal solution.

• If simultaneous changes for both CS and CD, the optimal solution did change
(extreme point 2 will be the new optimal solution).

• This results emphasizes the fact that a range of optimality by itself, can only be
used to draw a conclusion about changes made to one objective function
coefficient at a time.
 Right-Hand Sides
• Change in the right-hand side for a constraint may affect the
feasible region and perhaps cause a change in optimal solution
to the problem.

• E.g. if an additional 10 hours of production time become

available in the cutting and dyeing department of Par, Inc.
 Right-Hand Sides
• The right-hand side of the cutting and dyeing constraint is
changed from 630 to 640, and the constraint is rewritten as
(7/10) S + 1D ≤ 640

• Application of the graphical solution procedure to the problem

with the feasible region shows that the extreme point with S=
527.5 and D = 270.75 now provides the optimal solution.
 Right-hand Sides

10
D

S
+
9D
=
77
Number of Deluxe Bags

11
.75
540
New Feasible Region
420 I&P Includes This Shaded Area

Optimal Solution
S = 527.50
D = 270.75
252

C&D
7/10 S + D = 640

F
S
300 540 708

Number of Standard Bags

 Right-Hand Sides
• The new value for the objective function is 10(527.50) +
9(270.75) = $7711.75, with an increase in profit of $7,711.75 -
$7,668.00 = $43.75.

• The increased profit occurs at a rate of $43.75/10 hours =

$4.375 per hour added.
 Right-Hand Sides
• The improvement in the value of the optimal solution per unit
increase in the right-hand side of the constraint is called the
dual price.

• The dual price for the cutting and dyeing constraint is $4.375; If
we increase the right-hand side of the cutting and dyeing constraint by 1
hour, the value of the objective function will improve by $4.375, vise
versa.
 Right-Hand Sides
• The dual price can generally be used to determine what will happen to the value of
the objective function when we make a one-unit change in the right-hand side of a
constraint.

• The value of the dual price may be applicable only for small changes in the right-
hand side.

• As more and more resources are obtained and the right-hand side value continues
to increase, other constraints will become binding and limit the change in the value
of the objective function.
 Right-Hand Sides
• In the problem for Par, Inc., we would eventually reach a point
where more cutting and dyeing time would be of no value; it would
occur at the point where the cutting and dyeing constraint becomes
nonbinding.

• At this point, the dual price would equal zero because an increase in
the right-hand side of such a constraint will affect only the value of
the slack or surplus variable for that constraint.
 Cautionary Note on the Interpretation of
Dual Prices
• The dual prices is the improvement in the value of the optimal
solution per unit increase in the right-hand side of a constraint.

• When the right-hand side of the constraint represents the amount of

a resource available, the associated dual price is often interpreted as
the maximum amount one should be willing to pay for one
additional unit of the resource.
 Cautionary Note on the Interpretation of
Dual Prices
• A sunk cost is one that is not affected by the decision made; It will
be incurred no matter what values the decision variables assume.

• A relevant cost is one that depends on the decision made; The

amount of a relevant cost will vary depending on the values of
decision variables.
 Cautionary Note on the Interpretation of
Dual Prices
• When the cost of a resource is sunk, the dual price can be interpreted as the
maximum amount the company should be willing to pay for one additional unit of
the resource.

• When the cost of a resource is relevant, the dual price can be interpreted as the
amount by which the value of the resource exceeds its cost.

• When the resource cost is relevant, the dual price can be interpreted as the
maximum premium over the normal cost that the company should be willing to
pay for one unit of the resource.
 Cautionary Note on the Interpretation of
Dual Prices
• Eg. The amount of cutting and dyeing time available if 630 hours.
The cost of the time available is a sunk cost if it must be paid
regardless of the number of standard and deluxe golf bags produced,
and should not be reflected in the objective function.

• It would be relevant cost if Par only had to pay for the number of
hours of cutting and dyeing time actually used to produce golf bags,
and all relevant costs should be reflected in the objective function.