Question

An investment banker is looking to determine the best investment for strategy for him client. He is deciding how much to invest in investments I and B subject to the risk the client is willing to accept. Using the output of the sensitivity analysis from the optimization model, which constraints are binding? A B 1Microsoft Excel 15.0 Sensitivity Report 2 Worksheet:[Office Hours Module5.xlsx]Problem 1 3 Report Created: 10/15/2017 8:14:44 PM 6 Variable Cells Final Reduced Objective Allowable Allowable Value Cos Coefficient Increase Decrease 8 Cell 9 $BS5 Decision VariablesI 26.25 10 $C$5 Decision Variables B 38.75 Name 0.2 0.033333333 0.1 0.1 0.1 0.014285714 12 Constraints 13 14 Cell 15 SE$8 Investment 16 SE$9 Internet 17 SES10 Risk Final Shadow Constraint Allowable Allowable Value Price R.H. Side Increase Decrease Name 65 0.025 26.25 300 30 300 35 1E+30 15 3.75 105 0.025 Risk Investment and Risk O Internet

Answer 1

Answer B

In linear programming , constraints with a slack value of zero are said to be binding i.e. they are satisfied with equality at the Linear Programming optimal. Constraints which do not have a slack value of zero are said to be not binding.

Also constraint which has a slack variable in optimal basis , it has shadow price as zero.

Thus In given question internet has zero shadow price implies it has optimal slack value , means it is not binding . And investment and risk have non zero shadow prices implies zero slack and hence BINDING constraints