1.
Firms face many constraints on their activity and plan accordingly:
- ________ demand
- ________ skilled labor and other production resources
- ________ finance (‘capital rationing’).
Correct Answer
A. Limited
Explanation
Firms face constraints on their activity and must plan accordingly. One constraint they face is limited demand, meaning that there is a finite amount of demand for their products or services. This limited demand can affect their production and sales strategies. Another constraint is the availability of skilled labor and other production resources. If there is a limited supply of skilled labor or other necessary resources, it can impact the firm's ability to meet demand. Lastly, firms may also face constraints on finance, known as "capital rationing." This means that they have limited access to funding or investment capital, which can limit their ability to expand or invest in new projects.
2.
The usual objective in questions is to maximise profit. Given that fixed costs are unaffected by the production decision in the short run, the approach should be to maximise the ____________ earned.
Correct Answer
B. Contribution
Explanation
In order to maximize profit, it is important to focus on the contribution earned. Contribution refers to the difference between the total revenue and the variable costs associated with production. By maximizing the contribution, a company can ensure that it covers its variable costs and generates a surplus that contributes to overall profit. This approach is particularly relevant in the short run, as fixed costs remain constant and do not impact the production decision. Therefore, the correct approach to maximize profit is to focus on maximizing the contribution earned.
3.
If there is one limiting factor, then the problem is best solved using ___ ______ analysis
Correct Answer
A. Key factor
Explanation
The given question states that if there is one limiting factor, the problem is best solved using "key factor" analysis. This suggests that when there is a single factor that is restricting or limiting the problem, it is most effective to analyze and focus on that specific factor. This approach allows for a targeted and efficient solution to be developed, addressing the key factor that is causing the limitation.
4.
Where there are two or more resources in short supply which limit the organization’s activities then ______ ____________ is required to find the solution.
Correct Answer
A. Linear programming
Explanation
Linear programming is a mathematical method used to find the best possible outcome in a given situation where there are multiple constraints and limited resources. It helps in optimizing the allocation of resources to maximize the desired objective. In this case, where there are two or more resources in short supply, linear programming can be used to determine the most efficient allocation of these resources to find a solution that best meets the organization's objectives. Exponential programming and progressive programming are not relevant in this context.
5.
Linear programming is used to:
Correct Answer(s)
A. Maximise contribution
B. Minimise costs
Explanation
Linear programming is a mathematical technique used to optimize a given objective function within a set of constraints. In this case, the objective is to maximize contribution and minimize costs. Maximizing contribution means finding the optimal allocation of resources to generate the highest possible profit or benefit. On the other hand, minimizing costs aims to find the most cost-effective solution by reducing expenses. Therefore, both maximizing contribution and minimizing costs are valid applications of linear programming.
6.
Limiting factor analysis - Assumptions:
There is a single quantifiable objective – e.g. maximise contribution. In reality there may be multiple objectives such as maximising return while simultaneously minimising risk.
Correct Answer
A. True
Explanation
The explanation for the given correct answer is that limiting factor analysis assumes that there is a single quantifiable objective, such as maximizing contribution. This means that the analysis focuses on identifying and optimizing the factor that limits the achievement of this objective. However, in reality, there may be multiple objectives, such as maximizing return while simultaneously minimizing risk. Therefore, the assumption of a single quantifiable objective may not hold true in all situations.
7.
Limiting factor analysis - Assumptions:
Each product always uses the same quantity of the scarce resource per unit. In reality this may not be the case. For example, learning effects may be enjoyed.
Correct Answer
A. True
Explanation
The explanation for the correct answer, which is True, is that the assumption made in limiting factor analysis is that each product always uses the same quantity of the scarce resource per unit. However, in reality, this may not be the case as there could be learning effects that allow for more efficient use of the resource over time. Therefore, the statement is true as it acknowledges that the assumption may not always hold true in real-world scenarios.
8.
Limiting factor analysis - Assumptions:
The contribution per unit is variable. In reality this may not be the case:
- the selling price may have to be increased to sell more
- there may be economies of scale, for example a discount for buying in bulk
Correct Answer
B. False
Explanation
The contribution per unit is constant. In reality this may not be the case:
– the selling price may have to be lowered to sell more
– there may be economies of scale, for example a discount for buying in bulk.
9.
Limiting factor analysis - Assumptions:
Products are not independent – in reality
- customers may expect to buy both products together
- the products may be manufactured jointly together.
Correct Answer
B. False
Explanation
Products are independent – in reality: – customers may expect to buy both products together – the products may be manufactured jointly together.
10.
Limiting factor analysis- Assumptions:
The scenario is long term. This allows us to ignore fixed costs.
Correct Answer
B. False
Explanation
The scenario is short term. This allows us to ignore fixed costs.
11.
_____ is the amount by which a resource is underutilized. It will occur when the optimum point does not fall on a given resource line.
_____ is important because unused resources can be put to another use, e.g. hired out to another manufacturer
Correct Answer
A. Piece
Explanation
The term "slack" refers to the amount by which a resource is underutilized. It occurs when the optimum point does not fall on a given resource line. Slack is important because unused resources can be put to another use, such as being hired out to another manufacturer. Therefore, the correct answer is "slack."
12.
Non-critical constraints will have _____ shadow prices as slack exists already
Correct Answer
A. 0
Explanation
Non-critical constraints will have a shadow price of 0 because these constraints already have slack, meaning that they are not binding in the optimal solution. Shadow prices represent the change in the objective function value for a unit increase in the right-hand side of a constraint. Since non-critical constraints have slack, they can be relaxed without affecting the optimal solution, and therefore their shadow prices are 0.
13.
Shadow price should be considered carefully. For example, the shadow price of labor may be calculated as $20 per hour. However, it may be possible to negotiate a _____ shadow price than this.
Correct Answer
A. Lower
Explanation
The explanation for the given correct answer is that even though the shadow price of labor is calculated as $20 per hour, it is still possible to negotiate a lower shadow price than this. This means that the actual cost of labor can be negotiated to be lower than the calculated shadow price, allowing for potential cost savings in the labor aspect of the project.
14.
If more of the critical constraint is obtained, the constraint line will move outwards altering the shape of the ________ region. After a certain point there will be little point in buying more of the scarce resource since any non-critical constraints will become critical.
Correct Answer
A. Feasible
Explanation
If more of the critical constraint is obtained, the constraint line will move outwards altering the shape of the feasible region. After a certain point there will be little point in buying more of the scarce resource since any non-critical constraints will become critical. This means that the feasible region will shrink and any points outside of it will no longer be feasible. Therefore, the correct answer is "feasible".