Chapter 3:

LP - Sensitivity Analysis and

Interpretation of Solution

Instructor: Dr. Neha Mittal

Sensitivity Analysis
 Sensitivity analysis (or post-optimality analysis) is used to
determine how the optimal solution is affected by changes,
within specified ranges, in:
 The objective function coefficients
 The right-hand side (RHS) values

 It helps in analyzing and understanding how our decisions

might have to change based on shifting conditions.

 It allows us to ask ‘what-if questions’ about the problem

Sensitivity Analysis: Key Terms

 Range of optimality
 The range of values for objective function coefficients that
may vary without affecting the optimal point (x1, x2).

 Dual price/value
 The improvement in the value of optimal solution per unit
increase in the right-hand side value of the constraint

 Range of Feasibility
 The range over which dual prices are applicable
Example
• A Starbucks wants to maximize hourly profit on sales of lattes
and cappuccinos. They make $5 per latte and $7 per
cappuccino.

• In any given hour,

– The latte frother can blend up to 6 cups per hour.
– The maximum milk supply in each hour is 19 cups. Lattes
require 2 cups, and cappuccinos take 3.
– The lid station can provide a max of 8 lids per hour. Each
latte and cappuccino must have a lid.

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Example

Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8

x1, x2 > 0
• Graphical Solution

x2
8
x1 + x2 < 8
Max 5x11 + 7x22
7
6 x1 < 6
5
Optimal Solution:
4 x1 = 5, x2 = 3
3
2x1 + 3x2 < 19
2
1
x1
1 2 3 4 5 6 7 8 9 10
6
Range of Optimality

Graphically, the limits of a range of optimality are

found by changing the slope of the objective function
line within the limits of the slopes of the binding
constraint lines.
• Changing Slope of Objective Function

x2
Coincides with
8 x1 + x2 < 8
7 constraint line
6 Objective function
5 5 line for 5x1 + 7x2
4 Coincides with
2x1 + 3x2 < 19
3 Feasible
Region
4 constraint line
2
3
1
1 2
x1
1 2 3 4 5 6 7 8 9 10
8
• Range of Optimality for c1
The slope of the objective function line is -c1/c2. The slope of
the first binding constraint, x1 + x2 = 8, is -1 and the slope of the
second binding constraint, 2x1 + 3x2 = 19, is -2/3.

Find the range of values for c1 (with c2 staying 7) such that the
objective function line slope lies between that of the two
binding constraints:
-1 < -c1/7 < -2/3

Multiplying through by -7 (and reversing the inequalities):

7 ≥ c1 ≥ 14/3
• Range of Optimality for c2
Find the range of values for c2 ( with c1 staying 5) such that
the objective function line slope lies between that of the two
binding constraints:
-1 < -5/c2 < -2/3
Multiplying by -1: 1 > 5/c2 > 2/3
Inverting: 1 < c2/5 < 3/2

Multiplying by 5: 5 < c2 < 15/2

Interpretation: As long as the cost changes between (4.6 & 7) for latte,
without changing the price of cappuccino OR the cost changes from (5 to 7.5)
for the capp. without changing the price for latte, the optimal solution of x1 =
5 and x2 = 3 will hold true.
100% Rule for Objective Function Coefficients
• For all objective function coefficients that are changed, sum the
percentages of the allowable increases and decreases represented by
changes. If the sum of the percentage changes does not exceed
100%, the optimal point will not change.
• Example: If simultaneously the profit on lattes was raised to $7 and
the profit on capp. was raised to $7.5, would the current optimal
point remain valid? What will be the new optimal solution?
• 100% rule:

% of allowable increase for latte:

=> ((actual/ allowable) * 100) %
=> (7 - 5) / (7 - 5) = (2/2) = 100%

% of allowable increase for cap.:

=> ((actual/ allowable) * 100) %
=> (7.5 - 7) / (7.5 - 7) = (0.5/0.5) = 100%

Because the sum of the two percentages (100% and 100%) in the objective
function coefficients is 200%, these simultaneous changes will affect the
optimal point.

We will therefore, need to resolve the problem.

Dual Price

 Let us consider how a change in the right-hand side for a

constraint might affect the feasible region and perhaps cause a
change in the optimal solution.

 The improvement in the value of the optimal solution per unit

increase in the right-hand side is called the dual price.

 The dual price is equal to the difference in the values of the

objective functions between the new and original problems.
Dual Price

 A dual price is determined by adding +1 to the right hand

side value in question and then resolving for the optimal
solution in terms of the same two binding constraints.

 The dual price for a nonbinding constraint is 0.

 A negative dual price indicates that the objective function

will not improve if the RHS is increased.

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• Starbucks Example - Dual Prices (Shadow Price)
Constraint 1: Since x1 < 6 is not a binding constraint,
its dual price is 0.

Constraint 2: Change the RHS value of the second constraint to 20 and

resolve for the optimal point determined by the last two constraints: 2x1
+ 3x2 = 20 and x1 + x2 = 8.
The solution is x1 = 4, x2 = 4, z = 48.
The dual price = znew - zold = 48 - 46 = 2.

Constraint 3: Change the RHS value of the third constraint to 9 and

resolve for the optimal point determined by the last two constraints: 2x1
+ 3x2 = 19 and x1 + x2 = 9.
The solution is: x1 = 8, x2 = 1, z = 47.
The dual price is znew - zold = 47 - 46 = 1.
Range of Feasibility

• The range of feasibility is the range over which dual prices

remain applicable.

Interpretation: As long as the RHS are within these ranges, the dual prices
(shadow prices) will not change.
 Practice Exercise
Olympic Bike is introducing two new lightweight bicycle frames, the Deluxe and the Professional, to be made from special aluminum and steel alloys. The
anticipated unit profits are $10 for the Deluxe and $15 for the Professional. The number of pounds of each alloy needed per frame is summarized below.

• A supplier delivers 100 pounds of the aluminum alloy and 80 pounds of the steel alloy weekly.
How many Deluxe and Professional frames should Olympic produce each week?
• Range of Optimality
Question: Suppose the profit on deluxe frames is increased to $20.
Is the above solution still optimal? What is the value of the
objective function when this unit profit is increased to $20?

If the unit profit on deluxe frames were $6 instead of $10, would the
optimal solution change?
Range of Optimality and 100% Rule

• Question: If simultaneously the profit on Deluxe frames was raised

to $16 and the profit on Professional frames was raised to $17,
would the current solution be optimal?

100% Rule is: (Actual increase/ Allowable increase) * 100%

Therefore, percentage of allowable increase;
For Deluxe frame: ((16 - 10) / (22.5 – 10)) * 100%
= 48%
For Professional frame: ((17 - 15) / (20 – 15)) * 100%
= 40%
Together = 48% + 40% = 88% < 100%,
Hence the current solution remains optimal 21
• Questions
Set up the system of equations that will allow you to solve for the dual value of the
“Aluminum” constraint.

Increase the RHS coefficient for the aluminum:

2D + 4P = 101
3D + 2P = 80
SOLVE THE SET OF EQUATIONS:
P = 17.875, D = 14.75,
Z-new = 10D + 15P = 415.625
Z-old = 412.5
Therefore, Dual Value = 415.625 – 412.5 = 3.125
Sunk and Relevant Costs
• Sunk Cost
– Sunk cost is an economic term for a sum paid in the past,
which is no longer relevant to decisions in the future. Sunk
costs do not affect a rational decision maker's best choice.
– When the cost of a resource is sunk, the dual price is the
maximum amount the company should be willing to pay
for one additional unit of resource.
• Relevant Cost
– It is the cost that is dependent on the decision made.
– When the cost of a resource is relevant, the dual price is the
amount by which the value of the resource exceeds its cost.
• Range of Feasibility and Relevant Costs
Question
Now assume that aluminum was not supplied upfront, but
instead ordered based on the production schedule (amount of
deluxe and professional bikes)
If aluminum were a relevant cost, what is the maximum
amount the company should pay for 50 extra pounds of
aluminum? (Aluminum initially costs $4 per pound)

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Answer
If aluminum was a relevant cost, the dual value
indicates the premium over the normal price that you should be
willing to pay.
Thus, if aluminum initially cost $4 per pound, then
additional units in the range of feasibility would be worth
$4 + $3.125 = $7.125 per pound.

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Questions
Assuming steel is a sunk cost, what would 70 more
pounds of steel be worth? 80 pounds?

If steel was a relevant cost, and the price was

initially $5.50 per pound, what is the most you should be
willing to pay per pound?

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• Range of Feasibility and 100% Rule
Question
If the supply of Aluminum was raised to 140 pounds
and simultaneously, the supply of Steel was raised to 120
pounds, would the dual prices still apply?

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Practice Problem

• Consider the following linear program:

Min 6x1 + 9x2 ($ cost)

s.t. x1 + 2x2 < 8

10x1 + 7.5x2 > 30
x2 > 2

x1, x2 > 0
• Range of Optimality
Question:
Suppose the unit cost of x1 is decreased to $4. Is the
current solution still optimal? What is the value of the objective
function when this unit cost is decreased to $4?
Answer:
The output states that the solution remains optimal as
long as the objective function coefficient of x1 is between 0 and
12. Because 4 is within this range, the optimal solution will not
change. However, the optimal total cost will be affected:
6x1 + 9x2 = 4(1.5) + 9(2.0) = $24
Question:
How much can the unit cost of x2 be decreased without
concern for the optimal solution changing?
• Range of Optimality
Answer:
The output states that the solution remains optimal as
long as the objective function coefficient of x2 does not fall
below 4.5.
• Range of Optimality and 100% Rule
Question:
If simultaneously the cost of x1 was raised to $7.5 and the
cost of x2 was reduced to $6, would the current solution remain
optimal?
• Range of Optimality and 100% Rule
Answer:
If c1 = 7.5, the amount c1 changed is 7.5 - 6 = 1.5. So
this is a 1.5/6 = 25% change.
If c2 = 6, the amount that c2 changed is 9 - 6 = 3. So this
is a 3/4.5 = 66.7% change.

The sum of the change percentages is 25% + 66.7% = 91%.

Because 91% < 100%, the optimal point will not change.
• Range of Feasibility
Question:
If the right-hand side of constraint 3 is increased by 1,
what will be the effect on the optimal solution?
• Range of Feasibility
Answer:
A dual price represents the improvement in the objective
function value per unit increase in the right-hand side. A
negative dual price indicates a deterioration (negative
improvement) in the objective, which in this problem means an
increase in total cost because we're minimizing. Since the right-
hand side remains within the range of feasibility, there is no
change in the optimal solution. However, the objective function
value increases by $4.50.
Practice Problem
• A company makes three components for sale. The components are processed
on two machines: a shaper and a grinder. The time reqd. (in minutes) on
each machine are as follows:

Component Shaper Time Grinder Time

A 6 4
B 4 5
C 4 2

The shaper is available for 7200 min. and grinder for 6600 min. No more
than 200 units of component C can be sold, but upto 1000 units of each of
the other components can be sold. In fact the company has orders for 600
units of component A that must be satisfied. The profit contributions for
components A, B and C are $8, $6 and $9 resp. Formulate the problem for
the recommended production quantities.
Let, x1 = units of component A manufactured
x2 = units of component B manufactured
x3 = units of component C manufactured

Objective : Max (8x1+ 6x2 + 9x3)

Subject to:
– 6x1+4x2+4x3≤ 7200 (in minutes)
– 4x1+5x2+2x3 ≤ 6600 (in minutes)
– x3 ≤ 200
– x1 ≤ 1000
– x2 ≤ 1000
– x1 ≥ 600
– x1, x2, x3 ≥ 0
Solution
• Interpret the objective coefficient ranges for company management.

1. As long as the unit profit on component A is less than $9,

without changing other unit profits, the optimal point (x1 = 600,
x2 = 700, x3 = 200) will not change.

2. As long as the unit profit on component B is between $5.33 and

$9, without changing other unit profits, the optimal point (x1 =
600, x2 = 700, x3 = 200) will not change.

3. As long as the unit profit on component C is greater than $6,

without changing other unit profits, the optimal point (x1 = 600,
x2 = 700, x3 = 200) will not change.
 • What are the right-hand side ranges? Interpret them.

Right-hand side range is known as Range of Feasibility. These can be interpreted

as:

For Constraint 1:
Any unit increase in the available time for ‘shaper’, will increase the profits
by $1.50, as long as the shaper’s available time remains between 4400 to
7400 minutes.

Constraint 2:
Any unit increase in the available time for ‘grinder’ will have no effect on
the total profits by $1.50, given the time is greater than 6300 minutes. This
is a non-binding constraint.

Constraint 3:
A unit increase in the sales of component C, will increase the total profits by
$3.00, given the units are between 100-900 units.
• For Constraint 4 and 5:
– Any unit increase in the sales of component A and B, will
have no effect on the total profits, given they are greater
than 600 and 700 units resp.

• For Constraint 6:
– A unit increase in the production of component A, will
decrease the total profits by $1.00, given they are between
514.28 and 1000 units.
• If more time is available on grinder, how much would it be worth?

Nothing, since there are 300 minutes of slack time on the

grinder at the optimal solution. Dual price is zero.

• If more units of component 3 can be sold at the same price, should the company
go for it? What will be the effect?

Yes, each increase in unit will yield $3.

Problem

 Decision Variables :
x1 = amount of Product 1 produced.
x2 = amount of Product 2 produced.

 Objective function: Max (3x1 + 5x2)

subject to:
x1 <= 4 (plant 1 capacity)
2x2 <= 12 (plant 2 capacity)
3x1 + 2x2 <= 18 (plant 3 capacity)
x1 , x 2 >= 0 (non – negativity)
Solution