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ADM 2302

Linear Programming Applications Marketing Applications Media Selection

The Biggs Department Store chain has hired an advertising firm to determine the types and amount of advertising it should have for its stores. The three types of advertising available are radio, television commercials and newspaper ads. The retail chain desires to know the number of each type of advertisement it should purchase in order to maximize exposure. It is estimated that each ad or commercial will reach the following potential audience and cost the following amount. Exposure People/ad or commercial


Television commercial Radio commercial Newspaper ad

20,000 12,000 9,000

$15,000 6,000 4,000

The company must consider the following resource constraints. 1. The budget limit for advertising is $100,000. 2. The television station has time available for four commercials. 3. The radio station has time available for 10 commercials. 4. The newspaper has space available for seven ads. 5. The advertising agency has time and staff available for producing no more than a total of 15 commercials and/or ads. Financial Applications Portfolio Selection Problem 1: (Was given on Midterm exam of summer 2002; May not be discussed in class) Shari has $4000 which she wants to put into a Keogh account before April 15. Doing so will save Shari over $1600 in federal and state taxes. Shari is not an experienced investor, but she knows that she wants to invest in stocks rather than bonds or mutual funds. She has heard that financial expert, Craig Jaynes, has predicted large increases in the following stocks during the coming year: Shares of Topeka Electronics should rise to $50. Crosswind should experience a 20% rise in the value of its stock. Genserve should match the peak price of $75 it achieved during the past year.

The current share prices for Topeka Electronics, Crosswind, and Genserve are $42, $30, and $64, respectively. Shari has decided to invest in one or more of these companies for a year and then revaluate her Keogh investments while her goal is to maximize the projected return over the coming year, she has decided to be somewhat conservative and invest at least $800 in Crosswind and at least $1000 in a one-year savings certificate of deposit paying 5%. She wants to invest no more than $2000 in either Topika Electronics or Genserve. a) Formulate this problem as a mathematical linear model using decision variables X1, X2, and X3 to represent the dollar investment in Topeka Electronics, Crosswinds, and Genserve, respectively, and X4 to represent the amount invested in the savings certificate. b) Formulate this problem as a mathematical linear model using decision variables Y1, Y2, and Y3, representing the number of shares of stock purchased in Topeka Electronics, Crosswind, and Genserve, respectively, with X4 still representing the amount invested in the savings certificate.

Professor: Rim Jaber

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ADM 2302 Problem 2: Kathleen Allen, an individual investor, has $70,000 to divide among several investments. The alternative investments are municipal bonds with an 8.5% annual return, certificates of deposit with a 5% return, treasury bills with a 6.5% return, and a growth stock fund with a 13% annual return. The investments are all evaluated after one year. However, each investment alternative has a different perceived risk to the investor; thus it is advisable to diversify. Kathleen wants to know how much to invest in each alternative in order to maximize the return. The following guidelines have been established for diversifying the investments and lessening the risk perceived by the investor 1. No more than 20% of the total investment should be in municipal bonds. 2. The amount invested in certificates of deposit should not exceed the amount invested in the other three alternatives. 3. At least 30% of the investment should be in treasury bills and certificates of deposit. 4. To be safe, more should be invested in CDs and treasury bills than in municipal bonds and the growth stock fund by a ratio of at least 1.2 to 1. Kathleen wants to invest the entire $70,000. Ingredient Blending Applications Blending Problem Seastrand Oil Company produces two grades of gasoline: regular and high octane. Both types of gasoline are produced by blending two types of crude oil. Although both types of crude oil contain the two important ingredients required to produce both gasolines, the percentage of important ingredients in each type of crude oil differs, as well as the cost per gallon. The percentage of ingredients A and B in each type of crude oil, and the cost per gallon, are shown below: Type of Crude Oil 1 2 Cost $ 0.10 $0.15 Ingredient A 20% 50% Ingredient B 60% 30%

Each gallon of regular must contain at least 40% of A, whereas each gallon of high octane can contain at most 50% of B. Daily demand for regular octane gasoline is 800,000 gallons, and daily demand for high octane is 500,000 gallons. How many gallons of each type of crude oil should be used in regular and high octane gasoline in order to satisfy daily demand at minimum cost? Manufacturing Applications Production Scheduling Problem The Silver Star bicycle Company will be manufacturing both mens and womens models for its Easy-Pedal 10speed bicycles during the next 2 months. The company wants to develop a production schedule indicating how many bicycles of each model should be produced each month. Current demand forecasts call for 150 mens and 125 womens models to be shipped during the first month and 200 mens and 150 womens models to be shipped during the second month. Additional data are shown: Last month the company used a total of 1000 hours of labor. The companys labor relation policy will not allow the combined total hours of labor (manufacturing plus assembly) to increase or decrease by more than 100 hours from month to month. In addition, the company charges monthly inventory at a rate of 2% of the production cost based on the inventory levels at the end of the month. The company would like to have at least 25 units of each model in inventory at the end of the 2 months.

Professor: Rim Jaber

Page: 2

ADM 2302

Labor Requirements(hours) Model Men's Women's Prod. Costs Manufacturing $120.00 $90.00 2.0 1.6 Assembly 1.5 1.0 Current Inventory 20 30


Establish a production schedule that minimizes production and inventory costs and satisfies the laborsmoothing, demand, and inventory requirements. What inventories will be maintained and what are the monthly labor requirements? b) If the company changed the constraints so that monthly labor increases and decreases could not exceed 50 hours, what would happen to the production schedule? How much will the cost increase? What would you recommend? Scheduling Applications Labor Planning Problem Problem # 1: (May not be discussed in class but the solution is provided in LP_ApplicationsMarketingInvestmentLabor.xsl ) The Clark County Sheriffs Department schedule police officers for 8-hour shifts. The beginning times for the shifts are 8:00 am, noon, 4:00 pm, 8:00 pm, midnight, and 4:00 am. An officer beginning a shift at one of these times works for the next 8 hours. During normal weekday operations, the number of officers needed varies depending on the time of day. The department staffing guidelines require the following minimum number of officers on duty: Time of Day 8:00am-noon noon-4:00pm 4:00pm-8:00pm 8:00pm-midnight midnight-4:00am 4:00am-8:00am Minimum officers on duty 5 6 10 7 4 6

Determine the number of police officers that should be scheduled to begin the 8-hours shift at each of the six times (8:00am, 4:00pm,8.00pm, midnight, and 4.00am) to minimize the total number of officers required. Problem # 2: (similar problem was given on Midterm exam of fall 2003) An airline with operations in San Diego, California must staff its ticket counters inside the airport. Ticket attendants work six-hour shifts at the counter. The requirements for number of agents are a function of the numbers of people expected to pass through the airlines ticket counters during various hours. The airline believes that the need for agents between the hours of 6 a.m. and 9 p.m. are as follows: 6a - 9a 12 9a 12 n 20 12 n - 3p 16 3p - 6p 24 6p - 9p 12

Ticket Agents Needed

Agents begin work either at 6 a.m., 9 a.m., 12 noon or 3 p.m. The shifts are designated as Shifts A, B, C, and D, respectively. It is the policy of the airline that at least half of the agents will speak English as the first language. Further, at least one-quarter of the agents should be fully bilingual (English and Spanish). How many and what type of agents should be hired for each shift to meet the language and staffing requirements for the airline? What if the English-speaking agents are paid $19/hour and the Bilingual agents are paid at $23/hour?

Professor: Rim Jaber

Page: 3