Chapter 2- Linear Programming Q2.12.

The Primo
Insurance
Company is introducing two new
Basic
Concepts

product lines: special risk insurance and mortgages. The expected

profit is $5per unit on special risk insurance and $2 per unit on
mortgages.
Management wishes to establish sales quotas for the new
product lines to maximize total expected profit. The work
requirements are shown below:a) Identify verbally the decisions to be made, the constraints on
these decisions, and the overall measure of performance for the
decisions.
b) Convert these verbal descriptions of the constraints and the
measure of performance into quantitative expressions in terms of
data and decisions.
c) Formulate
andSpeci
Solve a Mortga
linear programming
Departm
Work model for this
problem on ent
a spreadsheet.
al
ge
Hours
d) Formulate this Risk
same model algebraically.
Available
Underwriti
ng

2400

Administra

800

Algebraic formulation
To maximize profit(P), which depends on decision
variables s and m which refers to special risk and
mortgage units respectively.
Objective function
P=5s+2m
constraints
3s+2m2400
m 800
2s 1200 and
s,m 0

a) The decision to be made are the production rates (number of units to

be produced for sale) for the two new product lines special risk
insurance and mortgages.
Constraints on these decisions are the number of work hours used
per week by the two product lines which cannot exceed the number of
hours available.
The overall measure of performance for these decisions is the total
profit per week from the two new product lines.
Constraints:Work hours in Underwriting department=3(No. of special risk units)+2(No.
of mortgage units)
Work Hours in Administration department=0(No. of special risk units)
+1(No.of mortgage units)
Work Hours in Claims department=2(No. of special risk units)+0(No. of
mortgage units)

Spread sheet