Homework 6

Problem 1
Solve the Prototype Example (Wyndor Glass Co.) By the Interior Point Method with initial solution X1 = 3 and x2 = 1. (a) Report the solution found (X1, X2, and Z) when the objective function improvement in two consecutive iterations comes below 1% for the first time. (x1, x2) = (1.992, 5.975), and Z = 35.852 (b) How many iterations are needed to obtain a less than 0.01% improvement in two consecutive iterations? More than 15 iterations, since the last iteration allowed by IOR tutorial provided a 0.011% improvement which is still slightly more than 0.01% (c) Do you think that if you continue you will ever find the exact optimum solution (assume that the objective function is computed with a very high degree of accuracy). No, the trial solutions obtained by an Interior Point Algorithm keep getting closer and closer to the exact optimal solution but never quite get there. (d) Include iteration results

Iteration
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

X1
3 3.471 3.446 3.317 2.912 2.408 2.156 2.04 1.996 1.988 1.992 1.996 1.998 1.999 1.999 2

X2
1 2.044 2.956 3.587 4.414 5.207 5.603 5.802 5.901 5.95 5.975 5.988 5.994 5.997 5.998 5.999

Z
14 20.632 25.119 27.887 30.804 33.257 34.486 35.129 35.491 35.715 35.852 35.926 35.963 35.981 35.991 35.995

% Improvement
47.371 21.748 11.020 10.460 7.963 3.695 1.865 1.030 0.631 0.384 0.206 0.103 0.050 0.028 0.011

Problem 3.4-13
Al Ferris has $60,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in 5 years. After consulting with his financial adviser, he has been offered four types of fixed income investments, which we will label as investments A, B, C and D. Investments A and B are available at the beginning of each of the next 5 years. Each dollar invested in A at the beginning of a year returns $1.40, 2 years later. Each dollar invested in B at the beginning of a year returns $1.70, 3 years later. Investments C and D will each be available at one time in the future. Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5. Each dollar invested in D at the beginning of year 5 returns $1.30 at the end of year 5. Al wishes to know which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6. (a) All the functional constraints for this problem can be expressed as equality constraints. To do this let At, Bt, Ct, and Dt, be the amount invested in investments A, B, C and D respectively at the beginning of each year t for each t where the investment is available and will mature by the end of year 5. Also let Rt be the number of available dollars not invested at the beginning of year t (therefore available for investment in a later year). Thus, the amount invested at the beginning of year t plus Rt must equal the number of dollars available for investment at that time. Write such an equation in terms of the relevant variables above for the beginning of each of the 5 years to obtain the 5 functional constraints for this problem. A1+B1+R1=60,000 A2+B2+C2+R2=R1 A3+B3+R3=R2+1.4A1 A4+R4=R3+1.4A1+1.7B1 D5+R5=R4+1.4A3+1.7B2 (b) Formulate a complete linear programming model for this problem. Maximize P = 1.4A1+1.7B3+1.9C2+1.3D5 Subject to: A1+B1+R1=60,000 A2+B2+C2 +R2=R1 A3+B3+R3=1.4A1+R2 A4 +R4=1.4A2+1.7B1+R3 D5 +R5=1.4A3+1.7B2+R4 And At0, Bt0, Ct0, Dt0, Rt0

(c) Solve this model by the simplex method.

Problem 3.5-6
Maureen Laird is the CFO for Alva Electric Co., a major public utility in the Midwest. The company has scheduled the construction of new hydroelectric plants 5, 10, and 20 years from now to meet the needs of the growing population in the region served by the company. To cover at least the construction costs, Maureen needs to invest some of the companys money now to meet these future cash-flow needs. Maureen may purchase only three kinds of financial assets, each of which costs $1 million per unit. Fractional units may be purchased. The assets produce income 5, 10, and 20 years from now. And that income is needed to cover at least minimum cash-flow requirements in those years. (Any excess income above the minimum requirements for each time period will be used to increase dividend payments to shareholders rather than saving it to help meet the minimum cash-flow requirements in the next time period.) The following table shows both the amount of income generated by each u nit of each asset and the minimum amount of income needed for each of the future time periods when a new hydroelectric plant will be constructed.

Year

Income per Unit of Asset

Asset 1 Asset 2 Asset 3

Minimum Cash Flow Required

5 $2 million $1 million $0.5 million $400 million 10 $0.5 million $0.5 million $1 million $100 million 20 0 $1.5 million $2 million $300 million Maureen wishes to determine the mix of investments in the assets that will cover the cash-flow requirements while minimizing the total amount invested. (a) Formulate a linear programming model for this problem Minimize C= Subject to x1+x2+x3 2x1+x2+0.5x3400 0.5x1+0.5x2+x3100 1.5x2+2x3300 And x10, x20, x30

(b) Display the model on a spreadsheet.

Model
Year 5 10 20 Asset 1 2 0.5 0 0 Asset 2 1 0.5 1.5 0 Asset 3 0.5 1 2 0 Actual Cash Flow 0 >= 0 >= 0 >= Minimum Cash Flow Requirement 400 100 300 0

(c) Use the spreadsheet to check the possibility of purchasing 100 units of Asset 1, 100 units of Asset 2, and 200 units of Asset 3. How much cash flow would this mix of investments generate 5, 10, and 20 years from now? What would be the total amount invested?

Solution (x1, x2, x3) = (100, 100, 200)

Year 5 10 20 Asset 1 2 0.5 0 100 Asset 2 1 0.5 1.5 100 Asset 3 0.5 1 2 200 Actual Cash Flow 400 300 550 >= >= >= Minimum Cash Flow Requirement 400 100 300 400

(x1, x2, x3) = (100, 100, 200) is a feasible solution which would generate $400 million in 5 years, $300 million in 10 years, and $550 million in 20 years. The total invested would be $400 million. (d) Take a few minutes to use a trial-and-error approach with the spreadsheet to develop your best guess for the optimal solution. What is the total amount invested for your solution?

Trial - And - Error Solution

Year 5 10 20 Asset 1 2 0.5 0 125 Asset 2 1 0.5 1.5 100 Asset 3 0.5 1 2 100 Actual Cash Flow 400 212.5 350 >= >= >= Minimum Cash Flow Requirement 400 100 300 325

(e) Use the Excel Solver to solve the model by the simplex method.

Solver Optimal Solution

Year 5 10 20 Asset 1 2 0.5 0 100 Asset 2 1 0.5 1.5 200 Asset 3 0.5 1 2 0 Actual Cash Flow 400 150 300 >= >= >= Minimum Cash Flow Requirement 400 100 300 300

Problem 5.2-1
Consider the following problem Maximize Subject to Z=8x1+4x2+6x3+3x4+9x5 x1+2x2+3x3+3x4180 4x1+3x2+2x3+x4+x5270 X1+x2+x4+3x5180 And xj0, for j=1, 2, 3, 4, 5 You are given the facts that the basic variables in the optimal solution are x3, x1 and x5 and that [ ] [ ]

(a) Use the given information to identify the optimal solution. ( ) [ ]( ) ( )

) ( )

(b) Use the given information to identify the shadow prices for the three resources. ( )[ ] ( )

Problem 5.3-3
Consider the following problem Maximize Subject to Z=6x1+x2+2x3 2x1+2x2+ x32 -4x1-2x2- x33 X1+2x2+ x31 And x10, x20, x30 Let x4, x5, and x6 denote slack variables for the respective constrains. After you apply the simplex method, a portion of the final simplex tableau is as follows:

Basic Eq. Variable Z

Z x5 x3 x1 (0) (1) (2) (3) 1 0 0 0

Coefficient of:
x1 x2 x3 x4 2 1 -2 1 x5 0 1 0 0 x6 2 2 4 -1

Right Side

Use the fundamental insight presented in Sec 5.3 to identify the missing numbers in the final simplex tableau. Show your calculations. Final constraint columns for (x1, x2, x3):

( ( The final objective coefficients: ( RHS: ( ) ( )( )

) ( )

)( )

( )

)( )

Final Simplex Tableau Basic Eq. Variable Z

Z x5 x3 x1 (0) (1) (2) (3) 1 0 0 0

Coefficient of:
x1 0 0 0 1 x2 7 4 4 0 x3 0 0 1 0 x4 2 1 -2 1 x5 0 1 0 0 x6 2 2 4 -1

Right Side
6 7 0 1