for Business Decisions

by

ams
“ Linear Programming is a quantitative problem
solving approach that has been developed to
help managers make rational managerial
decisions”

Objective

In all applications of LP problems, the

maximization or minimization of some quantity
is the objective.
 Many management decisions involve making
the most effective use of limited resources
 Linear programming (LP)
◦ Widely used mathematical modeling technique
◦ Planning and decision making relative to resource
allocation
 Broader field of mathematical programming
◦ Here programming refers to modeling and solving a
problem mathematically
 PROPERTIES OF LINEAR PROGRAMS
1. One objective function
2. One or more constraints
3. Alternative courses of action
4. Objective function and constraints are linear –
proportionality and divisibility
5. Certainty
6. Divisibility
7. Nonnegative variables
 Developing a mathematical model to represent
the managerial problem
 Steps in formulating a LP problem
1. Completely understand the managerial problem
being faced
2. Identify the objective and the constraints
3. Define the decision variables
4. Use the decision variables to write mathematical
expressions for the objective function and the
constraints
 Common LP application – product mix
problem
 Two or more products are produced using
limited resources
 Maximize profit based on the profit contribution
per unit of each product
 Determine how many units of each product to
produce
Maximization:
 Maximizing the return on investment to financial
analyst who select from among an investment
portfolio.

 Maximizing the advertising effectiveness for a

marketing manager who wants to determine how best
to allocate a fixed advertising budget from among a
set of alternatives.
Minimization:
 Minimizing the total production and inventory costs to
a manufacture who develops a production schedule.
 Minimizing the costs of transportation of shipping
products to some customers.
 A toy company produces two types of toy
models [model 1] and [model 2]. The company
has 900 hours of production time available in its
producing department, 300 hours in its finishing
department and 100 hours in its packing and
shipping department. The production time of
model 1 is 1 hour while that for model 2 is 3/2
hours. The finishing time required for model 1 is
1/2 hours and for model 2 is 1/3 hours. Finally,
the packing and finishing department requires
1/8 hours for model 1 and 1/4 hours for model
2. The company estimated the profit of
contribution of models 1 and 2 to be $5 and $8
per toy respectively. Formulate problem as linear
program and solve it for an optimal solution.
 The company wants to determine the best
combination of Model1 and Model2 to produce,
to reach the maximum profit
HOURS REQUIRED TO
PRODUCE 1 UNIT
(X1) (X2)
DEPARTMENT Model 1 Model 2 AVAILABLE HOURS
Production 1 3/2 900

Finishing 1/2 1/3 300

Packing 1/8 1/4 100

Profit per unit $5 $8

• The objective is
Maximize profit
• The constraints are
– The hours of production time used cannot
exceed 900 hours.
– The hours of finishing time used cannot exceed
300 hours.
– The hours of packing time used cannot exceed
100 hours.

• The decision variables are

X1 = number of Model1 toys to be produced.
X2 = number of Model2 toys to be produced.
• Create objective function in terms of X1 and X2
Maximize profit = $5.X1 + $8.X2
• Develop mathematical relationships for the
three constraints
– For production, total time used is
(1 hours per model1)(Number of Model1 produced)
+ (3/2 hours per Model2)(Number of Model2
produced)
– First constraint is
Production time used ≤ Production time available
1.X1 + 3/2.X2 ≤ 900 (hours of Production time)
• Similarly
Finishing time used
≤ Finishing time available
1/2 .X1+ 1/3.X2 ≤ 300 (hours of Finishing time)

• And
Packing time used
≤ Packing time available
1/8 .X1+ 1/4.X2 ≤ 100 (hours of Packing time)
  The values for X1 and X2 must be nonnegative
X1 ≥ 0 (number of Model1produced is greater
than or equal to 0)
X2 ≥ 0 (number of Model2 produced is greater
than or equal to 0)
The complete problem stated mathematically
Maximize profit = $5.X1 + $8.X2
subject to (S.T)
1.X1 + 3/2.X2 ≤ 900 (production constraint)
½.X1+ 1/3.X2 ≤ 300 (finishing constraint)
1/8.X1+1/4.X2 ≤ 100 (packing constraint)
X1, X2 ≥ 0 (non-negativity constraint)
 Easiest way to solve a small LP problems is
graphically
 Only works when there are just two decision
variables
◦ Not possible to plot a solution for more than two
variables
 Provides valuable insight into how other
approaches work
 Non-negativity constraints mean that we are
always working in the first (or northeast)
quadrant of a graph
 X2

100 –
– This Axis Represents the Constraint X2 ≥ 0
Number of Model2

80 –
–
60 –
–
40 – This Axis Represents the
– Constraint X1 ≥ 0
20 –
–
| | | | | | | | | | | |

0 20 40 60 80 100 X1
Number of Model1
 X2

1000 –
– This Line Represents the Constraint ½.X1+1/3.X2 ≤ 300
Number of Model2

800 –
–
This Line Represents the Constraint X1+3/2.X2 ≤ 900
600 –
–
400 – This Line Represents the Constraint 1/8.X1+1/4.X2 ≤ 100
–
200 –
–
| | | | | | | | | | | |

0 200 400 600 800 1000 X1

Number of Model1
 X2

1000 –
–
(0, 250)
Number of Model2

800 –
–
600 – This Line Represents
$2000=$5.X1+$8.X2
–
This Line Represents
400 – $3700=$5.X1+$8.X2
–
200 –
(400, 0)
–
| | | | | | | | | | | |

0 200 400 600 800 1000 X1

Number of Model1
 X2

1000 –
–
Number of Model2

800 –
–
600 –
–
(0, 400)
400 –
–
(?)
200 –
– (600, 0)
(0, 0) | | | | | | | | | | | |

0 200 400 600 800 1000 X1

Number of Model1
 Solve for the intersection of the two constraint lines
 Using the elimination method to solve simultaneous
equations method, select a variable to be eliminated
 Eliminate X1 by multiplying the second equation by -2
and third equation by 8 and add it to the first equation
½.X1+1/3.X2 = 300 x -2
Becomes -X1 -2/3.X2 = -600

1/8.X1+1/4.X2 = 100 x8
Becomes X1 + 2.X2 = 800

So 4/3.X2 = 200 Then X2= 150

And substitute In any equation Then X1= 500
 A company produces two types of products
[product 1] and [product 2]. The company
management estimated that combined
production of both products must total to at
least 4 units per hour. They also estimated that
the processing units of product 1 takes about 1
hour while that of product 2 takes about 3 hours.
The minimum number of hours to be worked in a
shift is 6 hours. The company estimated the cost
of production of both products to be e $3 and
$4 per unit respectively. Formulate problem as
linear program and solve it for an optimal
solution.
Writing the objective function in terms of the
decision variables:
Objective Function: Min C = 3x + 4y
Writing the constraint statement in a linear
function format:
Constraint 1: 1x + 1y >= 4 units/ hour
Constraint 2: 1x + 3y >= 6 hours
Constraint 3: x and y should be >=0 ( i.e.
non-negative)
 Now we are ready to solve the problem. The
method we are going to use is the Graphical
Method.
 Graphical Method for Solving Linear Programming
with only 2 decision variables (e.g. x and y)
 The complete mathematical formulation of the toy
problem is a follows:
Min C = 3x + 4y
subject To (s.t.)
1x + 1y >= 4 units/hour
1x +3 y >= 6 hours
x , y >=0 ( i.e. non negative)
 X=3

 Y= 1

 C= 13
1) Prepare a graph of the feasible solution
points for each of the constraints.
2) Determine the feasible region by identifying
the solution points that satisfy all the
constraints simultaneously.
3) Draw an objective function line showing the
values of the x and y variables that yield a
specified value of the objective function.
Maximization Problems
4- Move parallel objective function lines toward Larger objective
function values until further movement would take the line
completely outside the feasible region.
5- A feasible solution point on the objective function line with the
Larger Value is the optimal solution which normally fall on an
extreme point of the feasible region.
Minimization Problems
4- Move parallel objective function lines toward Smaller objective
function values until further movement would take the line
completely outside the feasible region.
5- A feasible solution point on the objective function line with the
Smallest Value is the optimal solution which normally fall on an
extreme point of the feasible region.
 Slack and Surplus
 Special Cases in LP
1. No feasible solution
2. Unboundedness
3. Redundancy
4. Alternate Optimal Solutions
 Sensitivity Analysis