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MATRIX ALGEBRA
A matrix is a rectangular (or square) array of numbers in rows and columns. Every matrix is
characterized by:-
 Order or dimension: It is defined by the number of rows (m) and number of columns (n)
and denoted (m*n) and read as m by n.
 Membership: Matrices are denoted by capital letters while their members / elements are
designated by subscripted lower case letters of the alphabet. The first subscript refers to
the row to which the element belongs while the second the column.

Types of matrices
1. Null matrix: It is a matrix whose all elements are equal to zero.

 0 0 0
e.g. A( 2*3)   
 0 0 0
2. Rectangular matrix: A matrix in which the number of rows is not equal to the number of
columns (m  n)

 1 2 3
e.g. A   
 4 5 6
i. Row matrix: It is a rectangular matrix with one row and more than one columns
(m 1 and n  1) e.g. B  7 2 5 9 

ii. Column matrix: It is a rectangular matrix with one matrix and more than one rows

 2
(n 1 and m  1) e.g.  4
 6
3. Square matrix: A matrix in which the number of rows is equal to the number of columns
( m n )
4. Transpose matrix: It is a matrix derived by interchanging the rows(Columns) with the
columns (rows).

 1 4
 1 2 3  
A   The transpose of A is A'   2 5
 4 5 6
 3 6
5. Identity Matrix (unit matrix): It is a square matrix having all the elements of the leading
diagonal (that diagonal running from top left to bottom right) being equal to one, while the

 1 0 0
 1 0  
others are predominantly equal to zero i.e. I    , I   0 1 0
0 1   0 0 1

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6. Diagonal matrix: It’s a square matrix having all its elements being equal to zero except the

 5 0 0
 
main diagonal consisting of numbers other than one e.g. C   0 2 0
 0 0 7
7. Scalar matrix: It is a diagonal matrix whose all diagonal elements are equal

 5 0 0
 
e.g. D   0 5 0
 0 0 5
8. Symmetric matrix: it is a square matrix whose elements above the main diagonal are mirror
images of the elements below the main diagonal e.g.

 2 5 6
 1 2  
E   , F   5 3 7
 2 3  6 7 4
9. Sub-matrix: It is a matrix derived by deleting some rows and / or columns from a matrix.

 2 5 6
 9 10 
G   0 9 10 H    H is a sub-matrix of G
 
7 4 
 3 7 4 

MATRIX OPERATIONS
1. Matrix Addition / Subtraction

Two or more matrices may be added / subtracted if they are of the same order corresponding
elements being added / subtracted. Elements correspond in two or more matrices if and only if
they occupy the same position as defined by the row and column that define their positions.
The order of the sum / difference between two or more matrices is equal to the order of the
two or more matrices being added or subtracted.

2. Matrix Multiplication

Two matrices may be multiplied if the number of columns in the pre-multiplier is equal to the
number of rows in the post-multiplier with the product having an order defined by the rows in
the pre-multiplier and the columns of the post-multiplier.

Example
The national office of a car rental company is planning its maintenance for the next year. The
company’s management is interested in determining the company’s needs for certain repair
parts. The company rents saloon cars, station wagons and double cab pick ups. The matrix as
shown below indicates the number of each type of vehicle available for renting in the four
regions of the country:-
Saloon Station wagons Double cabs Region
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150 300 400 Coast

110 200 300 Central
90 100 100 Western
120 300 200 Eastern
Four repair parts of particular interest, because of their cost and frequency of replacement
are fan belts, plugs, batteries and tyres. On the basis of studies of maintenance records in
different parts of the country, the management have determined the average number of
repair parts needed per car during a year. These are summarized below
Saloons Station wagons Double cabs
17 16 15 Fan belts
12 8 5 Plugs
9 7 5 Batteries
4 7 6 Tyres
Required:-
(a) The total demand for each type of car
(b) The total number of each repair part required for the fleet
(c) The matrix C below contain the cost per unit in shillings for fan belts, spark plugs,
batteries and tyres. C  1250 800 6500 8000 Calculate the total cost for all repair
parts.

3. Matrix Inversion

Any matrix B has another matrix B  1 derived from it such that B * B  1  I .

Determination of an Inverse
There are two main methods for determining an inverse of a matrix and they include:-
(a)The Row Reduction (Echelon) Method

The Echelon method involves the algebraic operations of the rows of both the given square
matrix and its equivalent identity in such a manner that as the given matrix changes from its
current status to an identity, the equivalent identity changes into an inverse.
Example:
Find the inverse of the following matrix using the row reduction method
 2 5
B  
 1 6
(b)The Determinant Method

Steps
i. Find the cofactor matrix template which is a matrix of signs obtained by raising
negative one to the power of the sum of the row and column position of the matrix
i j
ii. Find the cofactor matrix : a cofactor of an element aij  ( 1) * minor of aij
iii. Find the determinant
iv. Find the adjoint

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1
v. The Inverse  * Adjo int
determinant

Laws of algebra on matrices

Additive association law A  ( B  C ) ( A  B )  C
Additive commutative law A  B  B  A
Distributive law A( B  C )  AB  AC or ( A  B )C  AC  BC
Multiplicative associative law A( BC ) ( AB)C
Multiplicative identity law AI  IA  A
Solution of simultaneous equations
1. An investor has Sh. 20,000 to invest. If part is invested at 8% and the rest at 12%, how
much should be invested at each rate to yield 11% on the total amount invested? (Use the
matrix method)
2. A movie theatre charges Sh. 80 for each adult admission and Sh. 50 for each child. One
Saturday, 525 tickets were sold, bringing in a total of 32,550. How many of each type of
ticket were sold? (Use the matrix method)
3. A firm manufactures three types of pans; round bottom, square bottom and triangular
bottom. These products use three available inputs from material; man hour and machine
hour as shown in the table below:

Inputs Per unit utilization of inputs Availability

Round Square Triangular
bottom bottom bottom
Raw material 6 5 3 110
Man-hour 8 4 5 130
Machine hour 7 6 3 125
Using the matrix method, determine the number of units of each product to produce in
order to utilize completely the available resources.
4. A company produces three products P, Q and R using raw materials A, B and C. One unit
of P requires 1, 2 and 3 units of A, B and C respectively. One unit of Q requires 2, 3 and 2
units of A, B and C respectively. One unit of R requires1, 2 and 2 units of A, B and C
respectively. The number of units available for raw material A, B and C are 8, 14 and 13
units respectively. Using the matrix method, find how many units of each product to
poduce in order to utilize completely the available resources.
5. A sales man has the following record of sales during three months for three items A, B and
C which have different rates of commission
Months Sales in units Total
A B C commission
(KSh.)
January 90 100 20 800
February 130 50 40 900
March 60 100 30 850

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Using the matrix method, find out the rates of commission in Sh. on items A, B and C.

MARKOV PROCESSES
Introduction
Markov analysis is a descriptive tool designed to predict the behaviour of a system over time.
A markov analysis is a procedure that can be used to describe the behaviour of a system in a
dynamic situation. Specifically, it describes and predicts the movement of a system, among
different system states, as time passes. This movement is done in a probabilistic (stochastic)
environment. To be able to predict the future movements and conditions of such a system
would be of value to the management.
Markov makes prediction such as:
 The probability of finding a system in any particular state at any given time.
 The long run probabilities of being in each state.

Assumptions of Markov analysis

 The system has a finite number of discrete states, none of which is ‘absorbing’
(a state that, once entered, cannot be left).
 The system’s condition (state) in any given period depends only on its condition in the
preceding period and on the transition probabilities.
 The transition probabilities are constant over time.
 Changes in the system may occur once and only once each period.
 The transition period occurs with regularity.

Information Flow in the Markov Analysis

The Markov model is based on two sets of input data, the transition matrix and the existing
(initial) conditions. From these inputs, the model makes two predictions, usually expressed as
vectors:
 The probabilities of the system being in any state, at any given future time.
 The long-run (Steady state) probabilities.

Terms used in Markov Analysis

 Stochastic process:-it arises whenever we have a series of events in which each event
is determined by chance.
 Transition matrix: - it is a matrix containing probabilities of a process moving from a
certain condition (or state) in the current stage (time period) to one of the possible
states in the next stage. The elements in the matrix are transitional probabilities.
 Recurrent state: it’s a state in which the probability is one that will be reentered at
some time in future but not necessarily in the next immediate time.
 Steady state / equilibrium / long run conditions:-It is a time reached by the process
where the probabilities no longer change with time i.e. the process is in equilibrium.
The systems state probabilities become independent of time.
 Initial conditions:-It describes the situation the system is currently in. It is always
described by a row matrix

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 State probabilities:-These are the probabilities of a given system being in a certain

state at any given time period. The initial probabilities and the transition probabilities
are used to derive the state probabilities.

Exercises
1. One half of a country’s population lives in the city and one half in the suburbs. There is an
80% chance that a suburban resident will remain in the suburbs within the next month. A
city dweller has a 50-50% chance of staying in the city or moving to the suburbs.
Determine:
i. The percentage of the population who will be in the suburb and the city one and
two months from now.
ii. The steady state probabilities.

2. The following table indicates the customers buying behaviour for a given product
Produced by ABC Company with two brands. Currently, the market share for Brand A is
27.5%, Brand B is 37.5% and Competitor’s Brand C is 35%.

Next months brand

Choice Brand A Brand B Competitors
Current months Brand C
Choice

Brand A 0.2 0.2 0.6

Brand B 0.1 0.5 0.4
Competitors Brand C 0.5 0.2 0.3
Determine
(a) The market shares one month and two months from now.
(b) The long run probabilities
(c) ABC Company is considering two alternative policies for promoting its products
1. Promote Brand A only. This will cost Sh. 150,000 invested in a lump sum and is
expected to change the transition matrix to:
To A B C
From
A 0.6 0.2 0.2
B 0.4 0.4 0.2
C 0.6 0.1 0.3

2. Promote Brand B only. This will cost Sh. 280,000 invested in a lump sum and is
expected to change the transition matrix to:
To A B C
From
A 0.1 0.5 0.4
B 0.2 0.8 0
C 0.3 0.5 0.2
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Required:
i. Which policy will bring larger increases in ABC’s total share of the market in the
long run?
ii. Which policy will be more efficient in terms of the gain per one thousand shilling
invested in the long run?
iii. Assume that each percentage of increased share in the total market is worth
Sh.10,000 to ABC’s; which policy (if any) should ABC take?
3. In a small town with three advocates X, Y and Z, each advocate knows that some clients
switch back and forth, depending on which advocate is available at the time the client
needs one. There are no new clients in the current legal market; however, none of the old
clients are leaving the area. During a slack period, the three advocates collected data
which identified the number of clients each advocate had seen during the preceding year.
Table 1 summarizes the results of this study and Table 2 summarizes the manner in which
the clients were gained or lost.
TABLE 1: Data Summary – Client Activity
Advocate Clients as at Change during the year Clients as at
January 1, 2008 Gain Loss January 1, 2009
X 400 75 50 425
Y 500 50 150 400
Z 500 100 25 575

TABLE 2: Gain – loss Summary

Advocate Clients Gains Losses Clients
as at From From From To To To as at
January X Y Z X Y Z January
1, 2008 1, 2009
X 400 0 50 25 0 50 0 425
Y 500 50 0 0 50 0 100 400
Z 500 0 100 0 25 0 0 575
Construct the state transition matrix that describes the above problem.
4. Continental Corporation operates a large fleet of cars for which an extensive preventive
maintainance program is utilized. The cars can be classified in one of the three states:
Good (G), Fair (F) and poor (P). The transition matrix of these cars is as follows:
TO G F P
FROM
G 0.6 0.3 0.1
F 0.2 0.6 0.2
P 0.1 0.4 0.5
Required:
i. Assume that currently there are 100 cars in good shape, 60 in fair shape and 20 in
poor shape. How many cars will be found in each condition next week?
ii. How many cars will be found in each condition once the process stabilizes?

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5. The market for homeowners insurance in a particular city is dominated by two companies:
national property and United family. Currently, national property insures 50% of the
homes in the city, united family insures 20% and the remainder are insured by a collection
of smaller companies. United family decides to offer rebates to increase its market share.
This has the following effects on the insurance purchases for the next several years; each
of 30% of national property’s customers switch to united family and 10% switch to other
companies, 20% of united family customers switch to national property and 5% switch to
other companies, 30% of the customers of other companies switch to national property
and 40% switch to united family. Determine the market share of the companies after two
years and also in the long run.

6. A manufacturer uses Machine Z in one of its production processes. Due to its constant
usage, the machine is inspected for maintenance purposes on a monthly basis. On
inspection, the condition of the machine is classified into four possible states as follows:-
State 1: Good
State 2: Minor repairs
State 3: Major repairs
State 4: Write off
Thereafter, the manufacturer adopts either of the following maintainance policies:-
Policy 1: Minor repairs if the machine is in state 2, overhaul if the machine is in state 3
and replace if the machine is in state 4
Policy 2: Minor repairs if the machine is in state 1, 2 or 3 and replace the machine if it is
in state 4

The costs of maintainance associated with each policy are shown in the table below:-
State Policy 1 (Sh.) Policy 2 (Sh.)
1 0 0
2 100,000 100,000
3 400,000 300,000
4 600,000 600,000
The transition probability matrices for each policy are as given below:-
Policy 1 Policy 2
To To
1 2 3 4 1 2 3 4
1 0 0.8 0.1 0.1  1  0 0.8 0.1 0.1 
2  0.1 0.6 0.2 0.1  2  0 0.5 0.4 0.1 
from   From 
3  0.05 0.3 0.45 0.2  3  0 0 0.4 0.6 
   
4 1 0 0 0  4 1 0 0 0 
Required:-
a) The long-run proportion of times the machine would be expected to be in each state if
Policy 1 is adopted
b) The long run proportion of times the machine would be expected to be in each state if
policy 2 is adopted

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c) The expected long run average cost for each policy

d) The policy you would recommend to the manufacturer

7. The manufacturer of Tamu Soft drinks has been facing stiff competition on its main brand
Tamu-Cola soda. The management is considering an extensive advertising and rebranding
campaign for Tamu-Cola soda. If the current branding remains, the transition matrix of
consumers between tamu-Cola and other brands will be as follows:-
To
Tamu -Cola Others
From Tamu –Cola 0.85 0.15
Others 0.25 0.75

After the advertising and rebranding campaign, the transition matrix is expected to
change as follows:-
To
Tamu -Cola Others
From Tamu –Cola 0.9 0.1
Others 0.3 0.7
The advertising and rebranding campaign is expected to cost Sh. 20 million each year.
There are 40 million consumers of soft drinks in the market and for each consumer, the
average profitability is Sh. 5 annually. Required:-
a) The equilibrium state proportion of consumers using tamu-Cola
i. Before the advertising campaigns
ii. After the advertising campaign
b) The expected annual profit increase or decrease after the advertising campaign. Would
you recommend the advertising campaign?

INPUT OUTPUT ANALYSIS NOTES

Input output analysis is used to analyze the interdependence of various segments of an
economy. According to the technique, an economy is divided into two broad sectors, the
sources or producers sector and the destinations or inputs or users’ sectors.
The producers’ sectors includes:-
 The section that manufactures goods
 The section that provides services
These goods and services are intended for:-
 Industrial usage and are called industrial goods and services
 Final consumption and these are termed consumer goods and services
The output of each industry from each industry is either for industrial use or for final
consumption.
The model aims at indicating how products produced from different sectors of the economy
are consumed by the industrial sector and the final consumption sector. It indicates how the
independent sectors of economy interact. The interaction of these sectors is necessary
information for planning purposes so as adequate stock of goods can be produced by the
economy. A device to assist in such planning is the technical coefficients.

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Assumptions of input – output models

 All inputs into an economy emerges as outputs i.e. input equals output
 Industries / sectors interdependently or interactively produce outputs with sectoral output
acting as inputs into the same or other sectors.

Types of input –output models

Input output models are of two types: Closed and open models. Closed models are those
where all that is produced by an industry / sector is consumed by sectors interacting in the
output production process. Open models are those in which some of the production is
consumed by those who produce it and the rest of the production is consumed by external
bodies.
Purpose of input output analysis
 Planning for economic development of a region or state
 Shows how resources in an economy are shared among contributing sectors
 Helps in determination of GDP
 Reveals impact of decision made by the contributing sectors on the economy
Exercises
1. Given the Input-output table below: -
P Q Final demand
P 60 140 300
Q 110 90 150
(a) Find the Technical Coefficient Matrix.
(b) Determine the Total Output hence distribute the result among the users, given
that the final demand for output from industry P increased by 10% while that
from Q went down by 5%.
2. The following is the input-output table for three industries X1, X2 and X3.

Users
X1 X2 X3 F Total Output
Producers X1 8 10 10 4 32
X2 8 20 6 6 40
X3 8 10 10 2 30
Required:
i. Determine the technology matrix.
ii. If the final demand for the outputs of industries X1, X2 and X3 becomes 6, 4 and 6
respectively, find the outputs required of the industries.
3. An economy consists of three industries R, S and T. the interrelationships between the
production of this industries is as shown below. Units in “000” tonnes.

R S T Consumer Total
R 50 20 40 70 180
S 20 30 20 90 160
T 30 20 20 50 120

Required:

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