Linear Optimization Models

Chapter 11

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Introduction
• Optimization problems:
• Can be used to support and improve managerial decision making
• Maximize or minimize some function, called the objective function, and
have a set of restrictions known as constraints
• Can be linear or nonlinear

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Introduction
• Typical applications:
• A manufacturer wants to develop a production schedule and an inventory policy
that will satisfy demand in future periods and at the same time minimize the total
production and inventory costs
• A financial analyst would like to establish an investment portfolio from a variety of
stock and bond investment alternatives that maximizes the return on investment
• A marketing manager wants to determine how best to allocate a fixed advertising
budget among alternative advertising media such as web, radio, television,
newspaper, and magazine that maximizes advertising effectiveness
• A company had warehouses in a number of locations. Given specific customer
demands, the company would like to determine how much each warehouse
should ship to each customer so that total transportation costs are minimized

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Introduction
• Linear optimization models are also known as linear programs
• Linear programming:
• A problem-solving approach developed to help managers make better
decisions
• Numerous applications in today’s competitive business environment
• For instance, GE Capital uses linear programming to help determine optimal
lease structuring

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A Simple Maximization Problem
Problem Formulation
Mathematical Model for the Par, Inc. Problem

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A Simple Maximization Problem
• Illustration:
• Par, Inc. - A small manufacturer of golf equipment and supplies
• Management has decided to move into the market for medium- and
high-priced golf bags
• Par’s distributor to buy all the produced bags by the end of third
month

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A Simple Maximization Problem
• Operations involved in manufacturing a golf bag:
• Cutting and dyeing the material
• Sewing
• Finishing (inserting umbrella holder, club separators, etc.)
• Inspection and packaging
• Table 11.1: Production Requirements Per Golf Bag

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A Simple Maximization Problem
• Estimated total time available for the next three months to perform
different operations:
Department Number of hours
Cutting and Dyeing 630
Sewing 600
Finishing 708
Inspection and Packaging 135

• Required profit contribution:

• Standard bag: $10/unit
• Deluxe bag: $9/unit

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A Simple Maximization Problem
• Develop a mathematical model of the Par, Inc. problem to determine
the number of standard bags and the number of deluxe bags to
produce to maximize total profit contribution
• Problem Formulation
• Problem formulation or modeling: Process of translating the verbal
statement of a problem into a mathematical statement (or model)

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A Simple Maximization Problem
• General guidelines for problem formulation:
• Understand the problem thoroughly
• Describe the objective
• Describe each constraint
• Define the decision variables
• Write the objective in terms of the decision variables
• Write the constraints in terms of the decision variables

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A Simple Maximization Problem
• Describe each constraint
Constraint Constraint
1 Number of hours of cutting and dyeing time used must be
less than or equal to the number of hours of cutting and
dyeing time available.
2 Number of hours of sewing time used must be less than or
equal to the number of hours of sewing time available.
3 Number of hours of finishing time used must be less than or
equal to the number of hours of finishing time available.
4 Number of hours of inspection and packaging time used
must be less than or equal to the number of hours of
inspection and packaging time available.

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A Simple Maximization Problem
• Define the decision variables
• S = number of standard bags
• D = number of deluxe bags
• Write the objective in terms of the decision variables
• If Par makes $10 for every standard and $9 for every deluxe bag,
Total profit contribution = 10S + 9D = Objective function
• Objective: Max 10S + 9D

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A Simple Maximization Problem
• Write the constraints in terms of the decision variables
Hours of cutting and Hours of cutting and
• Constraint 1: ≤
dyeing time used dyeing time available
7
S + 1D ≤ 630
10
Hours of sewing Hours of sewing
• Constraint 2: ≤
time used time available
1 5
S + D ≤ 600
2 6

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A Simple Maximization Problem
Hours of finishing Hours of finishing
• Constraint 3: ≤
time used time available
2
1S + D ≤ 708
3
Hours of inspection and Hours of inspection and
• Constraint 4: ≤
packaging time used packaging time available
1 1
S + D ≤ 135
10 4
• Nonnegativity constraints—based on the fact that the number of standard
or deluxe bags produced cannot be negative
S ≥ 0 and D ≥ 0 or S, D ≥ 0

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A Simple Maximization Problem
Mathematical Model for the Par, Inc. Problem
Mathematical model: a set of mathematical relationships
Max 10S + 9D
7
subject to(s.t) S + 1D ≤ 630 Cutting and dyeing
10
1 5
S + D ≤ 600 Sewing
2 6
2
1S + D ≤ 708 Finishing
3
1 1
S + D ≤ 135 Inspection and packaging
10 4
S, D ≥ 0

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A Simple Maximization Problem
Mathematical Model for the Par, Inc. Problem (contd.)
• This is a linear programming model (or linear program) because the
objective function and all constraint functions are linear functions of
the decision variables
• Linear function: Mathematical function in which each variable
appears in a separate term and is raised to the first power

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Solving the Par, Inc. Problem
The Geometry of the Par, Inc. Problem
Solving Linear Programs with Excel Solver

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Solving the Par, Inc. Problem
• To find the optimal solution to the problem modeled as a linear
program:
• The optimal solution must have the highest objective function value
• The optimal solution must be a feasible solution—a setting of the
decision variables that satisfies all of the constraints of the problem
• Search over the feasible region—a set of all possible solutions
• Find the solution that gives the best objective function value

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Solving the Par, Inc. Problem
The Geometry of the Par, Inc. Problem
• When only two decision variables, the functions of variables are
linear
• If constraints are inequalities, the constraint cuts the space in two
• The line and the area on one side of the line is the space the satisfies that
constraint
• These subregions are called half spaces
• The intersection of the half spaces make up the feasible region

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Figure 11.1: Feasible Region for the Par, Inc. Problem

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Figure 11.2:
The Optimal Solution to the Par, Inc. Problem

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Solving the Par, Inc. Problem
• Based on the geometry of Figure 11.2, to solve a linear optimization
problem we only have to search the extreme points of the feasible
region to find the optimal solution
• Extreme points are found where constraints intersect on the
boundary of the feasible region

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Solving the Par, Inc. Problem
Solving Linear Programs with Excel Solver
• The first step is to construct the relevant what-if model
• A what-if model for optimization allows the user to try different values of
the decision variables and see:
• Whether that trial solution is feasible
• The value of the objective function for that trial solution
• Convey to Excel Solver the structure of the linear optimization model

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Figure 11.3: What-If Spreadsheet Model for Par, Inc.

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Figure 11.4: Solver Dialog Box and Solution to the Par,
Inc. Problem

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Solving the Par, Inc. Problem
• The optimal solution:
• To make 540 Standard bags and 252 Deluxe bags for a profit of $7,668
• Using all the cutting and dyeing time as well as all finishing time, from
cells B19:B22 compared to C19:C22
• The results are consistent with the results obtained in Figures 11.1
and 11.2

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Figure 11.5: The Solver Answer Report for the Par, Inc.
Problem

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Solving the Par, Inc. Problem
• A binding constraint is one that holds as an equality at the optimal
solution
• The slack value for each less-than-or-equal-to constraint indicates
the difference between the left-hand and right-hand values for a
constraint
• By adding a nonnegative slack variable, we can make the constraint
equality

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A Simple Minimization Problem
Problem Formulation
Solution for the M&D Chemicals Problem

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A Simple Minimization Problem
• Illustration:
• Production requirements for M&D Chemicals:
• The combined production for products A and B must total at least 350
gallons
• Separately a major customer’s order for 125 gallons of product A must
also be satisfied
• Processing time:
• Product A: 2 hours/gallon
• Product B: 1 hour/gallon
• For the coming month, 600 hours of processing time are available

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A Simple Minimization Problem
• Production cost: Product A: $2/gallon; Product B: $3/gallon
• Objective: Minimizing the total production cost
Problem Formulation
• To find the minimum-cost production schedule:
• Define the decision variables and the objective function
Let A = number of gallons of product A
B = number of gallons of product B
• Objective function = 2A + 3B

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A Simple Minimization Problem
• Linear program for the M&D Chemicals problem:
Min 2A + 3B
s.t.
1A ≥ 125 Demand for product A
1A + 1B ≥ 350 Total production
2A + 1B ≤ 600 Processing time
A, B ≥ 0
• A surplus variable tells how much over the right-hand side the left-
hand side of a greater-than-or-equal-to constraint is for a solution
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Figure 11.6: Solver Dialog Box and Solution to the M&D
Chemical Problem

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Figure 11.7: The Solver Answer Report for the M&D
Chemicals Problem

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Special Cases of Linear Program
Outcomes
Alternative Optimal Solutions
Infeasibility
Unbounded

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Special Cases of Linear Program Outcomes
Alternative Optimal Solutions
• Where the optimal objective function contour line coincides with one of
the binding constraint lines on the boundary of the feasible region
• In these situations, more than one solution provides the optimal value
for the objective function

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Special Cases of Linear Program Outcomes
• Illustration using the Par, Inc. problem
• Original objective function: 10S + 9D
• Assume the profit for the standard golf bag decreased to $6.30.
• Revised objective function: 6.3S + 9D
• The optimal solution occurs at two extreme points:
• Extreme point 4 (S = 300, D = 420) and
• Extreme point 3 (S = 540, D = 252)

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Figure 11.8: Par, Inc. Problem with an Objective
Function of 6.3S + 9D (Alternative Optimal Solutions)

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Special Cases of Linear Program Outcomes
Infeasibility
• Means no solution to the linear programming problem
• No points satisfy all the constraints and the nonnegativity conditions
simultaneously
• Graphically, a feasible region does not exist
• Infeasibility occurs because:
• Management’s expectations are too high
• Too many restrictions have been placed on the problem

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Figure 11.9: No Feasible Region for the Par, Inc. Problem with Minimum
Production Requirements of 500 Standard and 360 Deluxe Bags

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Special Cases of Linear Program Outcomes
• Interpretation of Infeasibility for the Par, Inc. problem
• Let the management know that the resources available are not sufficient
to make 500 standard bags and 360 deluxe bags
• Provide details to the management on:
• Minimum amounts of resources that must be available
• The amounts currently available
• Additional amounts that would be required to accomplish this level of
production

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Table 11.2: Resources Needed to Manufacture 500
Standard Bags and 360 Deluxe Bags

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Special Cases of Linear Program Outcomes
• An infeasible problem when solved in Excel Solver:
• Will return a message indicating that no feasible solutions exists—indicating
no solution to the linear programming problem will satisfy all constraints
• Careful inspection is necessary to identify why the problem is infeasible
• One of the approaches is to drop one or more constraints and re-solve the
problem
• If we find an optimal solution for this revised problem, then the constraint(s)
that were omitted, in conjunction with the others, are causing the problem
to be infeasible

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Special Cases of Linear Program Outcomes
Unbounded
• The situation in which the value of the solution
• May be made infinitely large—for a maximization linear programming
• May be made infinitely small—for a minimization linear programming
• Without violating any of the constraints

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Special Cases of Linear Program Outcomes
• Illustration:
Consider the following linear program with two decision variables,
X and Y:
Max 20X + 10Y
s.t.
1X ≥2
1Y ≤ 5
X, Y ≥ 0

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Figure 11.10: Example of an Unbounded Problem

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Special Cases of Linear Program Outcomes
• Solving an unbounded problem using Excel Solver:
• Returns a message “Objective Cell values do not converge”
• In linear programming models of real problems:
• The occurrence of an unbounded solution means that the problem
has been improperly formulated

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Sensitivity Analysis
Interpreting Excel Solver Sensitivity Report

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Sensitivity Analysis
• Sensitivity analysis: The study of how the changes in the input
parameters of an optimization model affect the optimal solution
• It helps in answering the questions:
• How will a change in a coefficient of the objective function affect the
optimal solution?
• How will a change in the right-hand-side value for a constraint affect
the optimal solution?
• The shadow price for a constraint is the change in the optimal
objective function value if the right-hand side of that constraint is
increased by one

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Sensitivity Analysis
Interpreting Excel Solver Sensitivity Report
• Consider the M&D chemicals problem:
A = number of gallons of product A
B = number of gallons of product B
Min 2A + 3B
s.t.
1A ≥ 125 Demand for product A
1A + 1B ≥ 350 Total production
2A + 1B ≤ 600 Processing time
A, B ≥ 0

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Figure 11.11: Solver Sensitivity Report for the M&D
Chemicals Problem

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Sensitivity Analysis
• Classical sensitivity analysis:
• Based on the assumption that only one piece of input data has changed
• It is assumed that all other parameters remain as stated in the original
problem
• When interested in what would happen if two or more pieces of
input data are changed simultaneously:
• The easiest way to examine the effect of simultaneous changes is to make
the changes and rerun the model

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General Linear Programming
Notation and More Examples
Investment Portfolio Selection
Transportation Planning
Advertising Campaign Planning

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General Linear Programming Notation and
More Examples
• The general notation for linear programs uses the letter x with a subscript
• In the Par, Inc. problem the decision variables could be denoted as:
• 𝑥1 = number of standard bags
• 𝑥2 = number of deluxe bags
• Advantage: Formulating a mathematical model for a problem that
involves a large number of decision variables is much easier
• Disadvantage: Not being able to easily identify what the decision variables
actually represent in the mathematical model

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General Linear Programming Notation and
More Examples
• Par, Inc. model using the general notation:
Max 10𝑥1 + 9𝑥2
s.t.
7
𝑥 + 1 𝑥2 ≤ 630 Cutting and dyeing
10 1
1 5
𝑥 + 𝑥 ≤ 600 Sewing
2 1 6 2
2
1 𝑥1 + 𝑥2 ≤ 708 Finishing
3
1 1
𝑥 + 𝑥 ≤ 135 Inspection and packaging
10 1 4 2
𝑥1 , 𝑥2 ≥ 0
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General Linear Programming Notation and
More Examples
Investment Portfolio Selection
• Portfolio selection problems involve situations in which a financial
manager must select specific investments—for example, stocks and
bonds—from a variety of investment alternatives
• Objective: Maximization of expected return or minimization of risk
• Constraints: Restrictions on the type of permissible investments,
state laws, company policy, and so on

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General Linear Programming Notation and
More Examples
Table 11.3: Investment Opportunities for
Illustration Welte Mutual Funds
• Welte Mutual Funds, Inc.,
located in New York City, is
looking for investment
opportunities for $100,000
• The firm’s top financial analyst
identified five investment
opportunities and projected
their annual rates of return

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General Linear Programming Notation and
More Examples
• Welte investment guidelines:
• Neither industry (oil or steel) should receive more than $50,000
• Amount invested in government bonds should be at least 25 percent of
the steel industry investments
• The investment in Pacific Oil, the high-return but high-risk investment,
cannot be more than 60 percent of the total oil industry investment

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General Linear Programming Notation and
More Examples
• Define the following decision variables:
𝑋1 = dollars invested in Atlantic Oil
𝑋2 = dollars invested in Pacific Oil
𝑋3 = dollars invested in Midwest Steel
𝑋4 = dollars invested in Huber Steel
𝑋5 = dollars invested in government bonds
• Specify the objective: Maximizing return
Max 0.073𝑋1 + 0.103 𝑋2 + 0.064 𝑋3 + 0.075 𝑋4 + 0.045 𝑋5

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General Linear Programming Notation and
More Examples
• Define the constraints:
Constraint 1: 𝑋1 + 𝑋2 + 𝑋3 + 𝑋4 + 𝑋5 = 100,000
Constraint 2: 𝑋1 + 𝑋2 ≤ 50,000
𝑋3 + 𝑋4 ≤ 50,000
Constraint 3: 𝑋5 ≥ 0.25(𝑋3 + 𝑋4 )
Constraint 4: 𝑋2 ≤ 0.60(𝑋1 + 𝑋2 )
Nonnegativity constraints: 𝑋1 , 𝑋2 , 𝑋3 , 𝑋4 , 𝑋5 ≥ 0

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General Linear Programming Notation and
More Examples
• Linear programming model for the Welte Mutual Funds investment
problem:
Max 0.073𝑋1 + 0.103 𝑋2 + 0.064 𝑋3 + 0.075 𝑋4 + 0.045 𝑋5
s.t.
𝑋1 + 𝑋2 + 𝑋3 + 𝑋4 + 𝑋5 = 100,000 Available funds
𝑋1 + 𝑋2 ≤ 50,000 Oil industry maximum
𝑋3 + 𝑋4 ≤ 50,000 Steel industry maximum
𝑋5 ≥ 0.25(𝑋3 + 𝑋4 ) Government bonds minimum
𝑋2 ≤ 0.60(𝑋1 + 𝑋2 ) Pacific Oil restriction
𝑋1 , 𝑋2 , 𝑋3 , 𝑋4 , 𝑋5 ≥ 0

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Figure 11.12:
The Solution for the Welte Mutual Funds Problem

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General Linear Programming Notation and
More Examples
Transportation Planning
• Transportation problem arises in planning for the distribution of goods
and services from several supply locations to several demand locations
• Quantity of goods available at each supply location (origin) is limited
• Quantity of goods needed at each of several demand locations
(destinations) is known
• Objective: Minimize the cost of shipping goods from the origins to the
destinations

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General Linear Programming Notation and
More Examples
• Illustration using Foster Generators problem
• Involves the transportation of a product from three plants to four
distribution centers
• To determine how much of its production should be shipped from
each plant to each distribution center

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General Linear Programming Notation and
More Examples
• Production capacities over the next three-month planning period for one type of
generator:

• The three-month forecast of demand for the distribution centers:

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Figure 11.13: The Network Representation of the Foster
Generators Transportation Problem

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General Linear Programming Notation and
More Examples
• Objective is to determine:
• Routes to be used
• Quantity to be shipped via each route
• Minimum total transportation cost
• Let xij = number of units shipped from origin i to destination j
where i = 1, 2, . . . , m and j = 1, 2, . . . , n

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Table 11.4: Transportation Cost Per Unit for the Foster
Generators Transportation Problem ($)

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General Linear Programming Notation and
More Examples
• Supply constraints
x11 + x12 + x13 + x14 ≤ 5000 Cleveland supply
x21 + x22 + x23 + x24 ≤ 6000 Bedford supply
x31 + x32 + x33 + x34 ≤ 2500 York supply
• Demand constraints
x11 + x21 + x31 = 6000 Boston demand
x12 + x22 + x32 = 4000 Chicago demand
x13 + x23 + x33 = 2000 St. Louis demand
x14 + x24 + x34 = 1500 Lexington demand

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General Linear Programming Notation and
More Examples
• A 12-variable, 7-constraint linear programming formulation of the Foster Generators
transportation problem:

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Figure 11.14: Spreadsheet Model and Solution for the
Foster Generator Problem

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General Linear Programming Notation and
More Examples
Advertising Campaign Planning:
• Designed to help marketing managers allocate a fixed advertising
budget to various advertising media
• Objective: Maximize reach, frequency, and quality of exposure
• Restrictions: Company policy, contract requirements, and media
availability

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General Linear Programming Notation and
More Examples
• Illustration: Relax-and-Enjoy Lake Development Corporation:
• Developing a lakeside community at a privately owned lake
• Primary market includes all middle- and upper-income families within
approximately 100 miles of the development
• Employed the advertising firm of Boone, Phillips, and Jackson (BP&J) to
design the promotional campaign

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Table 11.5: Advertising Media Alternatives for the Relax-and-
Enjoy Lake Development Corporation

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General Linear Programming Notation and
More Examples
• Problem Formulation:
• Budget: $30,000
• Restrictions imposed:
• At least 10 television commercials must be used
• At least 50,000 potential customers must be reached
• No more than $18,000 may be spent on television advertisements
• The decision to be made is how many times to use each medium

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General Linear Programming Notation and
More Examples
• Define the decision variables:
• DTV = number of times daytime TV is used
• ETV = number of times evening TV is used
• DN = number of times daily newspaper is used
• SN = number of times Sunday newspaper is used
• R = number of times radio is used
• Objective: Maximizing the total exposure quality units for the
overall media selection plan

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General Linear Programming Notation and
More Examples
• Linear programming model for the Relax-and-Enjoy advertising
campaign planning problem:
Max 65DTV + 90ETV + 40DN + 60SN + 20R Exposure quality
DTV ≤ 15
ETV ≤ 10
DN ≤ 25 Availability of media
SN ≤ 4
R ≤ 30
1500DTV + 3000ETV + 400DN + 1000SN +100R ≤ 30,000 Budget

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General Linear Programming Notation and
More Examples
• Linear programming model for the Relax-and-Enjoy advertising
campaign planning problem (contd.):
DTV + ETV ≥ 10 Television
1500DTV + 3000ETV ≤ 18,000 restrictions
1000DTV + 2000ETV + 1500DN + 2500SN + 300R ≥ 50,000 Customers reached

DTV, ETV, DN, SN, R ≥ 0

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Figure 11.15: A Spreadsheet Model and the Solution for the
Relax-and-Enjoy Lake Development Corporation Problem

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Figure 11.16: The Excel Sensitivity Report for the Relax-
and-Enjoy Lake Development Corporation Problem

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Generating an Alternative
Optimal Solution for a Linear
Program

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Generating an Alternative Optimal Solution
for a Linear Program
• Illustration: Consider the Foster Generators transportation
problem
• From Figure 11.14, the optimal solution:
x11 = 1000, x12 = 4000, x13 = 0, x14 = 0
x21 = 2500, x22 = 0, x23 = 2000, x24 = 1500
x31 = 2500, x32 = 0, x33 = 0, x34 = 0
• Optimal cost: $39,500
• For the revised model to be optimal, the solution must give a total
cost of $39,500

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Generating an Alternative Optimal Solution
for a Linear Program
• From Figure 11.14:
x13 = x14 = x22 = x32 = x33 = x34 = 0
• If the sum of these variables is maximized and if the optimal
objective function value of the revised problem is positive
• A different feasible solution that is also optimal is found

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Generating an Alternative Optimal Solution
for a Linear Program
• Revised model

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Table 11.6: An Alternative Optimal Solution to the
Foster Generators Transportation Problem

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Generating an Alternative Optimal Solution
for a Linear Program
• In the original solution (Figure 11.14):
• Boston distribution center is sourced from all three plants, whereas each of the other
distribution centers is sourced by one plant
• Hence, the manager in the Boston distribution center has to deal with three different plant
managers, whereas each of the other distribution center managers has only one plant
manager
• The alternative solution (Table 11.6) provides a more balanced solution
• Managers in Boston and Chicago each deal with two plants, and those in St. Louis and
Lexington, which have lower total volumes, deal with only one plant
• Because the alternative solution seems to be more equitable, it might be preferred
• Both the solutions give a total cost of $39,500

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Generating an Alternative Optimal Solution
for a Linear Program
• General approach to find an alternative optimal solution to a linear
program:
• Step 1: Solve the linear program
• Step 2: Make a new objective function to be maximized; It is the sum of
those variables that were equal to zero in the solution from Step 1
• Step 3: Keep all the constraints from the original problem; add a constraint
that forces the original objective function to be equal to the optimal
objective function value from Step 1
• Step 4: Solve the problem created in Steps 2 and 3; if the objective function
value is positive, an alternative optimal solution is found

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