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THE TAIWAN ELECTRONIC COMMUNICATIONS (TEC) PROBLEM 115

Note that the objective function coefficient values for S and A have no upper
limit. Even if the cost of A were to increase, for example, from 300 sh. to 1300 sh. per
kilo, the optimal solution would not change; the total cost of the solution, however,
would increase by 1000 sh. (the amount of the increase) times 1.541 or 1541 sh. You
must always keep in mind that the interpretations we have made using the sensitivity
analysis information in the computer output are only appropriate if all other coef-
ficients in the problem do not change. To consider simultaneous changes we must
use the 100 per cent rule or re-solve the problem after making the changes.

3.5 The Taiwan Electronic Communications (TEC) Problem

So far, we have looked mostly at basic, two-variable LP problems so that we can
focus easily on the general principles of formulation and solution. In the next
chapter we will illustrate how more complex situations can be modelled with LP
and highlight common types of LP models. An ability to formulate, solve and then
interpret more complex problems is critical and we shall introduce a slightly more
complex problem to provide additional practise.
The Taiwan Electronic Communications (TEC) company is based in Taiwan and has
an international reputation for manufacturing communication equipment for use by
both business and individuals. Its latest product is an encrypted portable radio system
that allows for secure radio communications between users with a range of up to 25
kilometres. The company intends to target the new product at four specific markets:
1 oil rigs;
2 agriculture and forestry;
3 retail sales through local distributors;
4 Internet sales through its own website.
Because the product is new, the company has decided on an initial, limited produc-
tion to test market the product.
Because of differing distribution and promotional costs, the profitability of the
product will vary with the target market. In addition, the advertising cost and the
personal sales effort required will vary with the target market. Table 3.2 summarizes
the contribution to profit, advertising cost and personal sales effort data. The firm has
set the advertising budget at $5000, and a maximum of 1800 hours of salesforce time is
available for allocation to the sales effort. Management also decided to produce 600
units for the current production period. Finally, an ongoing contract with a chain of
retail stores requires that at least 150 units be available for retail sales.

Table 3.2 Profit, Advertising Cost, and Personal Sales Time Data for the TEC
Problem

Profit per Advertising Personal Sales
Unit Sold Cost per Unit Effort per Unit Sold
Target Market ($) Sold ($) (hours)
Oil rigs 90 10 2
Agriculture and Forestry 84 8 3
Retail stores 70 9 3
Internet Sales 60 15 None

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