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# Answer to Statistics question: Quantitative Methods

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Joe is going to invest \$250,000 in the development of new products. The new products have the following expected costs, yields, and degrees of risk.

Expected Expected Expected
Product Cost Yield Risk
A \$100,000 0.20 8
B \$50,000 0.10 4
C \$50,000 0.15 10
D \$150,000 0.10 0

Joe can do each product at its full cost or he may attempt a partial development and still expect a yield proportional to the level of expenditure on the product. Joe wants to limit his total weighted risk(degree of risk times budgeted amount) to 1000000 units; that is, an adopted plan for a \$10000 expenditure with a degree of risk of 7 would be 70000 riskunits.

What should Joe invest to net the highest yield given his risk constraints?

Decision Variable Product A Product B Product C Product D
100000 50000 0 150000

Objective function:
Maximize the yield 20000 5000 0 15000
Total Yield 40000

Constraints
Risk 800000 200000 0 0
Total Risk 1000000
Limit on Risk 1000000

Limit on investment in each product
Available 100000 50000 50000 150000
Used 100000 50000 0 150000

Run solver to solve the LP
See the solver output. Thus, the following investments should be made in four products
A 100000
B 50000
C 0
D 150000

Decision Variable Product A Product B Product C Product D
100000 50000 0 150000

Objective function:
Maximize the yield 20000 5000 0 15000
Total Yield 40000

Constraints
Risk 800000 200000 0 0
Total Risk 1000000
Limit on Risk 1000000

Limit on investment in each product
Available 100000 50000 50000 150000
Used 100000 50000 0 150000

The following investments should be made in 4 products:
A 0
B 0
C 0
D 0

This is an investment problem in linear programming. Please solve and show work

##### Solution Summary

Word document contains complete formulation and explanation. The excel file contains formulation in Solver tool dialogue box and optimal solution.

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