Chapter 7

Linear Programming Models:

Graphical and Computer Methods
Introduction
 Many management decisions involve trying to
make the most effective use of limited resources.
 Linear programming (LP) is a widely used
mathematical modeling technique designed to help
managers in planning and decision making relative
to resource allocation.
◦ This belongs to the broader field of mathematical
programming.
◦ In this sense, programming refers to modeling and solving
a problem mathematically.

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 Requirements of a Linear Programming
Problem

 All LP problems have 4 properties in common:

1. All problems seek to maximize or minimize some quantity (the
objective function).
2. Restrictions or constraints that limit the degree to which we can
pursue our objective are present.
3. There must be alternative courses of action from which to
choose.
4. The objective and constraints in problems must be expressed in
terms of linear equations or inequalities.

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 Basic Assumptions of LP

 We assume conditions of certainty exist and numbers in the

objective and constraints are known with certainty and do
not change during the period being studied.
 We assume proportionality exists in the objective and
constraints.
 We assume additivity in that the total of all activities equals
the sum of the individual activities.
 We assume divisibility in that solutions need not be whole
numbers.
 All answers or variables are nonnegative.

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 LP Properties and Assumptions

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
Table 7.1

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 Formulating LP Problems
 Formulating a linear program involves developing a
mathematical model to represent the managerial problem.
 The steps in formulating a linear program are:
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.

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 Formulating LP Problems
 One of the most common LP applications is the product
mix problem.
 Two or more products are produced using limited
resources such as personnel, machines, and raw
materials.
 The profit that the firm seeks to maximize is based on
the profit contribution per unit of each product.
 The company would like to determine how many units
of each product it should produce so as to maximize
overall profit given its limited resources.

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 Flair Furniture Company
 The Flair Furniture Company produces
inexpensive tables and chairs.
 Processes are similar in that both require a certain
amount of hours of carpentry work and in the
painting and varnishing department.
 Each table takes 4 hours of carpentry and 2 hours
of painting and varnishing.
 Each chair requires 3 of carpentry and 1 hour of
painting and varnishing.
 There are 240 hours of carpentry time available
and 100 hours of painting and varnishing.
 Each table yields a profit of $70 and each chair a
profit of $50.
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Flair Furniture Company Data
The company wants to determine the best
combination of tables and chairs to produce to reach
the maximum profit.

HOURS REQUIRED TO
PRODUCE 1 UNIT
(T) (C) AVAILABLE HOURS
DEPARTMENT TABLES CHAIRS THIS WEEK
Carpentry 4 3 240

Painting and varnishing 2 1 100

Profit per unit $70 $50

Table 7.2

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 Flair Furniture Company

 The objective is to:

Maximize profit
 The constraints are:
1. The hours of carpentry time used cannot
exceed 240 hours per week.
2. The hours of painting and varnishing time
used cannot exceed 100 hours per week.
 The decision variables representing the actual
decisions we will make are:
T = number of tables to be produced per week.
C = number of chairs to be produced per week.

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 Flair Furniture Company

 We create the LP objective function in terms of T

and C:
Maximize profit = $70T + $50C
 Develop mathematical relationships for the two
constraints:
 For carpentry, total time used is:
(4 hours per table)(Number of tables produced)
+ (3 hours per chair)(Number of chairs produced).
 We know that:
Carpentry time used ≤ Carpentry time available.
4T + 3C ≤ 240 (hours of carpentry time)

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 Flair Furniture Company
 Similarly,
Painting and varnishing time used
≤ Painting and varnishing time available.
2 T + 1C ≤ 100 (hours of painting and varnishing time)

This means that each table produced

requires two hours of painting and
varnishing time.

 Both of these constraints restrict production

capacity and affect total profit.

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 Flair Furniture Company
The values for T and C must be nonnegative.
T ≥ 0 (number of tables produced is greater
than or equal to 0)
C ≥ 0 (number of chairs produced is greater
than or equal to 0)

The complete problem stated mathematically:

Maximize profit = $70T + $50C
subject to
4T + 3C ≤ 240 (carpentry constraint)
2T + 1C ≤ 100 (painting and varnishing constraint)
T, C ≥ 0 (nonnegativity constraint)
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Graphical Solution to an LP Problem

 The easiest way to solve a small LP

problems is graphically.
 The graphical method only works when
there are just two decision variables.
 When there are more than two variables, a
more complex approach is needed as it is
not possible to plot the solution on a two-
dimensional graph.
 The graphical method provides valuable
insight into how other approaches work.

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 Graphical Representation of a Constraint

Quadrant Containing All Positive Values

C

100 –
– This Axis Represents the Constraint T ≥ 0
80 –
Number of Chairs

–
60 –
–
40 – This Axis Represents the
– Constraint C ≥ 0
20 –
–
|– | | | | | | | | | | |
Figure 7.1 0 20 40 60 80 100 T
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Graphical Representation of a Constraint

 The first step in solving the problem is to

identify a set or region of feasible solutions.
 To do this we plot each constraint equation on
a graph.
 We start by graphing the equality portion of the
constraint equations:
4T + 3C = 240
 We solve for the axis intercepts and draw the
line.

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 Graphical Representation of a Constraint

 When Flair produces no tables, the carpentry

constraint is:
4(0) + 3C = 240
3C = 240
C = 80
 Similarly for no chairs:
4T + 3(0) = 240
4T = 240
T = 60
 This line is shown on the following graph:

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 Graphical Representation of a Constraint

Graph of carpentry constraint equation

C

100 –
–
80 –
Number of Chairs

(T = 0, C = 80)
–
60 –
–
40 –
–
(T = 60, C = 0)
20 –
–
Figure 7.2 |– | | | | | | | | | | |
0 20 40 60 80 100 T
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 Graphical Representation of a Constraint

Region that Satisfies the Carpentry Constraint

C
 Any point on or below
100 – the constraint plot will
– not violate the
80 – restriction.
Number of Chairs

–  Any point above the

60 –
plot will violate the
restriction.
–
(30, 40) (70, 40)
40 –
–
20 –
– (30, 20)
|– | | | | | | | | | | |
Figure 7.3 0 20 40 60 80 100 T
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 Graphical Representation of a Constraint

 The point (30, 40) lies on the plot and exactly

satisfies the constraint
4(30) + 3(40) = 240.
 The point (30, 20) lies below the plot and satisfies
the constraint
4(30) + 3(20) = 180.
 The point (70, 40) lies above the plot and does
not satisfy the constraint
4(70) + 3(40) = 400.
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 Graphical Representation of a Constraint
Region that Satisfies the Painting and
Varnishing Constraint
C

100 – (T = 0, C = 100)
–
80 –
Number of Chairs

–
60 –
–
40 –
–
(T = 50, C = 0)
20 –
–
|– | | | | | | | | | | |
Figure 7.4
0 20 40 60 80 100 T
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 Graphical Representation of a Constraint

 To produce tables and chairs, both departments must

be used.
 We need to find a solution that satisfies both
constraints simultaneously.
 A new graph shows both constraint plots.
 The feasible region (or area of feasible solutions) is where
all constraints are satisfied.
 Any point inside this region is a feasible solution.
 Any point outside the region is an infeasible solution.

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 Graphical Representation of a Constraint
Feasible Solution Region for the Flair
Furniture Company Problem
C

100 –
–
80 –
Number of Chairs

Painting/Varnishing Constraint
–
60 –
–
40 –
–
Carpentry Constraint
20 – Feasible
– Region
|– | | | | | | | | | | |
Figure 7.5
0 20 40 60 80 100 T
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 Graphical Representation of a Constraint

 For the point (30, 20)

Carpentry 4T + 3C ≤ 240 hours available
constraint (4)(30) + (3)(20) = 180 hours used 
Painting 2T + 1C ≤ 100 hours available
constraint (2)(30) + (1)(20) = 80 hours used


 For the point (70, 40)

Carpentry 4T + 3C ≤ 240 hours available

constraint (4)(70) + (3)(40) = 400 hours used 
Painting 2T + 1C ≤ 100 hours available
constraint (2)(70) + (1)(40) = 180 hours used 
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 Graphical Representation of a Constraint

 For the point (50, 5)

Carpentry 4T + 3C ≤ 240 hours available
constraint (4)(50) + (3)(5) = 215 hours used 
Painting 2T + 1C ≤ 100 hours available
constraint (2)(50) + (1)(5) = 105 hours used 

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 Isoprofit Line Solution Method
 Once the feasible region has been graphed, we need to find
the optimal solution from the many possible solutions.
 The speediest way to do this is to use the isoprofit line
method.
 Starting with a small but possible profit value, we graph the
objective function.
 We move the objective function line in the direction of
increasing profit while maintaining the slope.
 The last point it touches in the feasible region is the
optimal solution.

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 Isoprofit Line Solution Method
 For Flair Furniture, choose a profit of $2,100.
 The objective function is then
$2,100 = 70T + 50C
 Solving for the axis intercepts, we can draw the graph.
 This is obviously not the best possible solution.
 Further graphs can be created using larger profits.
 The further we move from the origin, the larger the profit
will be.
 The highest profit ($4,100) will be generated when the
isoprofit line passes through the point (30, 40).

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 Isoprofit Line Solution Method
Profit line of $2,100 Plotted for the Flair
C
Furniture Company

100 –
–
80 –
Number of Chairs

–
60 –
– $2,100 = $70T + $50C
(0, 42)
40 –
–
(30, 0)
20 –
–
|– | | | | | | | | | | |
Figure 7.6
0 20 40 60 80 100 T
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 Isoprofit Line Solution Method
Four Isoprofit Lines Plotted for the Flair
Furniture Company
C

100 –
–
$3,500 = $70T + $50C
80 –
Number of Chairs

– $2,800 = $70T + $50C

60 –
– $2,100 = $70T + $50C
40 –
– $4,200 = $70T + $50C
20 –
–
|– | | | | | | | | | | |
Figure 7.7
0 20 40 60 80 100 T
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 Isoprofit Line Solution Method
Optimal Solution to the Flair Furniture problem
C

100 –
–
80 –
Number of Chairs

Maximum Profit Line

–
60 – Optimal Solution Point
– (T = 30, C = 40)
40 –
– $4,100 = $70T + $50C
20 –
–
|– | | | | | | | | | | |
Figure 7.8
0 20 40 60 80 100 T
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Corner Point Solution Method
 A second approach to solving LP problems
employs the corner point method.
 It involves looking at the profit at every corner
point of the feasible region.
 The mathematical theory behind LP is that the
optimal solution must lie at one of the corner
points, or extreme point, in the feasible region.
 For Flair Furniture, the feasible region is a four-
sided polygon with four corner points labeled 1, 2,
3, and 4 on the graph.
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 Corner Point Solution Method
Four Corner Points of the Feasible Region
C

100 –
2 –
80 –
Number of Chairs

–
60 –
–
3
40 –
–
20 –
–
1 |– | | | | | | | | | | |
Figure 7.9 0 20 40 60 80 100
4 T
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 Corner Point Solution Method

 To find the coordinates for Point 3 accurately we have to

solve for the intersection of the two constraint lines.
 Using the simultaneous equations method, we multiply the
painting equation by –2 and add it to the carpentry equation
4T + 3C = 240 (carpentry line)
– 4T – 2C = –200 (painting line)
C = 40

 Substituting 40 for C in either of the original equations

allows us to determine the value of T.
4T + (3)(40) = 240 (carpentry line)
4T + 120 = 240
T = 30
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 Corner Point Solution Method
Point 1 : (T = 0, C = 0) Profit = $70(0) + $50(0) = $0
Point 2 : (T = 0, C = 80) Profit = $70(0) + $50(80) = $4,000
Point 4 : (T = 50, C = 0) Profit = $70(50) + $50(0) = $3,500
Point 3 : (T = 30, C = 40) Profit = $70(30) + $50(40) = $4,100

Because Point 3 returns the highest profit, this is

the optimal solution.

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Sample Problem:
 A farmer has 240 acres to plant. He needs
to decide how many acres of corn to
plant and how many of oats. He can make
P40 per acre profit for corn and P30 per
acre for oats. However, the corn takes 2
hours of labor per acre to harvest and
the oats only take 1 hour per acre. He
only has 320 hours of labor he can invest.
To maximize his profit, how many acres of
each should he plant?
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 Slack and Surplus
 Slack is the amount of a resource that is
not used. For a less-than-or-equal
constraint:
◦ Slack = Amount of resource available – amount
of resource used.
 Surplus is used with a greater-than-or-equal
constraint to indicate the amount by which
the right hand side of the constraint is
exceeded.
◦ Surplus = Actual amount – minimum amount.
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 Summary of Graphical Solution Methods

ISOPROFIT METHOD
1. Graph all constraints and find the feasible region.
2. Select a specific profit (or cost) line and graph it to find the slope.
3. Move the objective function line in the direction of increasing profit (or
decreasing cost) while maintaining the slope. The last point it touches in the
feasible region is the optimal solution.
4. Find the values of the decision variables at this last point and compute the
profit (or cost).
CORNER POINT METHOD
1. Graph all constraints and find the feasible region.
2. Find the corner points of the feasible reason.
3. Compute the profit (or cost) at each of the feasible corner points.
4. Select the corner point with the best value of the objective function found in
Step 3. This is the optimal solution.

Table 7.4

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Four Special Cases in
Linear Programming
Four special cases and difficulties arise at times
when using the graphical approach to solving LP
problems
 Four Special Cases in Linear
Programming:
1. No Feasible Solution (Infeasibility)
2. Unboundedness
3. Redundancy
4. Alternate Optimal Solutions
1. No Feasible Solution
(Infeasibility)
 Lack of a feasible solution region can occur if constraints conflict
with one another.
 Graphically, it means that no feasible solution region exists—a
situation that might occur if the problem was formulated with
conflicting constraints.
 This, by the way, is a frequent occurrence in real-life, large-scale LP
problems that involve hundreds of constraints.
 For example, if one constraint is supplied by the marketing manager
who states that at least 300 tables must be produced (namely, X1 ≥
300) to meet sales demand, and a second restriction is supplied by
the production manager, who insists that no more than 220 tables be
produced (namely, X2 ≤ 220) because of a lumber shortage, no
feasible solution region results.
 As a further graphic illustration of this, let us consider the
following three constraints:
2. Unboundedness
 This means that in a maximization problem, for example, one or
more solution variables, and the profit, can be made infinitely large
without violating any constraints.
 If we try to solve such a problem graphically, we will note that the
feasible region is open ended.
 As you see in figure, because this is a maximization problem
and the feasible region extends infinitely to the right, there is
unboundedness, or an unbounded solution. This implies that
the problem has been formulated improperly. It would
indeed be wonderful for the company to be able to produce an
infinite number of units of X1 (at a profit of $3 each!), but
obviously no firm has infinite resources available or infinite
product demand.
3. Redundancy
 A redundant constraint is simply one that does not affect the
feasible solution region.
 In other words, one constraint may be more binding or
restrictive than another and thereby negate its need to be
considered.
 Example:
Three constraints:
 The third constraint, is redundant and unnecessary in
the formulation and solution of the problem because it
has no effect on the feasible region set from the first
two more restrictive constraints.
 4. Alternate Optimal Solution

 Graphically, this is the case when the objective function’s isoprofit or

isocost line runs perfectly parallel to one of the problem’s constraints—in
other words, when they have the same slope.
 In this case not only are extreme points optimal, but all points on the edge
connecting them are optimal.
 Far from causing problems, the existence of more than one optimal
solution allows management great flexibility in deciding which combination
to select.
Example:
 As we see in figure, our first isoprofit line of $8 runs parallel to
the constraint equation. At a profit level of $12, the isoprofit
line will rest directly on top of the segment of the first
constraint line. This means that any point along the line
between A and B provides an optimal and combination. Far
from causing problems, the existence of more than one optimal
solution allows management great flexibility in deciding which
combination to select. The profit remains the same at each
alternate solution.
Sensitivity Analysis
 Optimal solutions to LP problems have thus far been found under
what are called deterministic assumptions.
 Sensitivity analysis often involves a series of what-if? questions
concerning constraints, variable coefficients, and the objective
function.
 Such analyses are used to examine the effects of changes in three
areas: (1) contribution rates for each variable (2)
technological coefficients (the numbers in the constraint
equations), and (3) available resources (the right-hand-side
quantities in each constraint).
 This task is alternatively called sensitivity analysis, postoptimality
analysis, parametric programming, or optimality analysis.
 Sensitivity analysis can be used to deal not only with errors in
estimating input parameters to the LP model but also with
management’s experiments with possible future changes in the
firm that may affect profits
There are two (2) approaches to determining just how
sensitive an optimal solution is to changes:
 Trial-and-error Approach
- resolving the entire problem, preferably
by computer.

 Postoptimality Analysis
- examining changes after the optimal
solution has been reached.
- done without resolving the whole
problem.
Example:
 The High Note Sound Company manufactures quality compact disc (CD)
players and stereo receivers. Each of these products requires a certain
amount of skilled artisanship, of which there is a limited weekly supply. The firm
formulates the following LP problem in order to determine the best production
mix of CD players (X1) and receivers (X2):
 Given this information and deterministic assumptions,
the firm should produce only stereo receivers (20 of
them), for a weekly profit of $2,400.
For the optimal solution, the electrician hours used are:
2X1 + 4X2 = 2(0) + 4(20) = 80
 And this equals the amount available, so there is 0
slack for this constraint. Thus, it is a binding
constraint. If a constraint is binding, obtaining
additional units of that resource will usually result in
higher profits. The audio technician hours used are
for the optimal solution (0, 20) are:

3X1 + 1X2 = 3(0) + 1(20) = 20

 but the hours available are 60. Thus, there is a slack of hours. Because
there are extra hours available that are not being used, this is a
nonbinding constraint. For a nonbinding constraint, obtaining additional
units of that resource will not result in higher profits and will only
increase the slack.
 Changes in the Objective
Function Coefficient

 In real-life problems, contribution rates (usually profit or cost) in the

objective functions fluctuate periodically, as do most of a firm’s expenses.
 Graphically, this means that although the feasible solution region remains
exactly the same, the slope of the isoprofit or isocost line will change.
Changes in the
Objective Function Coefficient
Changes in the Receiver Contribution Coefficients
X2
40 –
Profit Line for 50X1 + 80X2
(Passes through Point b)
30 –
Old Profit Line for 50X1 + 120X2
(Passes through Point a)
20 –
b
a Profit Line for 50X1 + 150X2
10 – (Passes through Point a)

| c | | |
0–
| |
X1
10 20 30 40
Figure 7.1750 60

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 It is easy to see in figure that the High Note Sound Company’s
profit line is optimal at point a. But what if a technical
breakthrough just occurred that raised the profit per stereo
receiver from $120 to $150? Is the solution still optimal?
 The answer is definitely yes, for in this case the slope of the profit line
accentuates the profitability at point a. The new profit is $3000 = 0($50) +
20($150).

 On the other hand, if ’s profit coefficient was overestimated and should

only have been $80, the slope of the profit line changes enough to cause a
new corner point (b) to become optimal. Here the profit is $1760 =
16($50) + 12($80).
Changes in the Technological
Coefficients
 Changes in Technological Effects often reflect changes in the state of
technology.
 If fewer or more resources are needed to produce a product such as a
CD player or stereo receiver, coefficients in the constraint equations will
change.
 These changes will have no effect on the objective function of an LP
problem, but they can produce a significant change in the shape of the
feasible solution region, and hence in the optimal profit or cost.
 Changes in the Resources or Right-
Hand-Side Values

 The right-hand-side values of the constraints often represent

resources available to the firm. The resources could be labor hours
or machine time or perhaps money or production materials
available.
 In the High Note Sound Company example, the two resources are
hours available of electricians’ time and hours of audio technicians’
time.
 If additional hours were available, a higher total profit could be
realized. How much should the company be willing to pay for
additional hours? Is it profitable to have some electricians work
overtime? Should we be willing to pay for more audio
technician time? Sensitivity analysis about these resources will
help us answer these questions.
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 Chapter 8

Linear Programming Applications

To accompany
Quantitative Analysis for Management, Eleventh Edition, Global Edition
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson
Learning Objectives
After completing this chapter, students will be able to:

1. Model a wide variety of medium to large LP

problems.
2. Understand major application areas, including
marketing, production, labor scheduling, fuel blending,
transportation, and finance.
3. Gain experience in solving LP problems with QM for
Windows and Excel Solver software.

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Education 8-72
Chapter Outline

8.1 Introduction
8.2 Marketing Applications
8.3 Manufacturing Applications
8.4 Employee Scheduling Applications
8.5 Financial Applications
8.6 Ingredient Blending Applications
8.7 Transportation Applications

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Education 8-73
Introduction

 The graphical method of LP is useful for

understanding how to formulate and solve
small LP problems.
 There are many types of problems that can
be solved using LP.
 The principles developed here are applicable
to larger problems.

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Marketing Applications
 Linear programming models have been used in the
advertising field as a decision aid in selecting an
effective media mix.
 Media selection problems can be approached with
LP from two perspectives:
◦ Maximize audience exposure.
◦ Minimize advertising costs.

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Education 8-75
Win Big Gambling Club
 The Win Big Gambling Club promotes gambling junkets to
the Bahamas.
 It has $8,000 per week to spend on advertising.
 Its goal is to reach the largest possible high-potential
audience.
 Media types and audience figures are shown in the
following table.
 It needs to place at least five radio spots per week.
 No more than $1,800 can be spent on radio advertising
each week.

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Win Big Gambling Club
Advertising options

AUDIENCE COST PER MAXIMUM ADS

MEDIUM REACHED PER AD AD ($) PER WEEK
TV spot (1 minute) 5,000 800 12
Daily newspaper (full-
8,500 925 5
page ad)
Radio spot (30
2,400 290 25
seconds, prime time)
Radio spot (1 minute,
2,800 380 20
afternoon)

Copyright © 2012 Pearson

Education 8-77
 Win Big Gambling Club
The problem formulation is
X1 = number of 1-minute TV spots each week
X2 = number of daily paper ads each week
X3 = number of 30-second radio spots each week
X4 = number of 1-minute radio spots each week
Objective:
Maximize audience coverage = 5,000X1 + 8,500X2 + 2,400X3 + 2,800X4
Subject to X1 ≤ 12 (max TV spots/wk)
X2 ≤5 (max newspaper ads/wk)
X3 ≤ 25 (max 30-sec radio spots ads/wk)
X4 ≤ 20 (max newspaper ads/wk)
800X1 + 925X2 + 290X3 + 380X4 ≤ $8,000 (weekly advertising budget)
X3 + X4 ≥5 (min radio spots contracted)
290X3 + 380X4 ≤ $1,800 (max dollars spent on radio)
X1, X2, X3, X4 ≥0

Copyright © 2012 Pearson

Education 8-78
Win Big Gambling Club Solution in
Excel 2010

Program 8.1

Copyright © 2012 Pearson

Education 8-79
Marketing Research
 Linear programming has also been applied to
marketing research problems and the area of
consumer research.
 Statistical pollsters can use LP to help make
strategy decisions.

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Education 8-80
Management Sciences Association
 Management Sciences Associates (MSA) is a marketing
research firm.
 MSA determines that it must fulfill several requirements in
order to draw statistically valid conclusions:
◦ Survey at least 2,300 U.S. households.
◦ Survey at least 1,000 households whose heads are 30 years of age
or younger.
◦ Survey at least 600 households whose heads are between 31 and
50 years of age.
◦ Ensure that at least 15% of those surveyed live in a state that
borders on Mexico.
◦ Ensure that no more than 20% of those surveyed who are 51
years of age or over live in a state that borders on Mexico.
Copyright © 2012 Pearson
Education 8-81
Management Sciences Association
 MSA decides that all surveys should be conducted in
person.
 It estimates the costs of reaching people in each age and
region category are as follows:

COST PER PERSON SURVEYED ($)

REGION AGE ≤ 30 AGE 31-50 AGE ≥ 51

State bordering Mexico $7.50 $6.80 $5.50

State not bordering Mexico $6.90 $7.25 $6.10

Copyright © 2012 Pearson

Education 8-82
Management Sciences Association
 MSA’s goal is to meet the sampling requirements at the
least possible cost.
 The decision variables are:
X1 = number of 30 or younger and in a border state
X2 = number of 31-50 and in a border state
X3 = number 51 or older and in a border state
X4 = number 30 or younger and not in a border state
X5 = number of 31-50 and not in a border state
X6 = number 51 or older and not in a border state

Copyright © 2012 Pearson

Education 8-83
Management Sciences Association
Objective function
Minimize total
interview costs = $7.50X1 + $6.80X2 + $5.50X3
+ $6.90X4 + $7.25X5 + $6.10X6

subject to
X1 + X2 + X3 + X4 + X5 + X6 ≥ 2,300 (total households)
X1 + X4 ≥ 1,000 (households 30 or younger)
X2 + X5 ≥ 600 (households 31-50)
X1 + X2 + X3 ≥ 0.15(X1 + X2+ X3 + X4 + X5 + X6) (border states)
X3 ≤ 0.20(X3 + X6) (limit on age group 51+ who can live in
border state)
X1, X2, X3, X4, X5, X6 ≥ 0

Copyright © 2012 Pearson

Education 8-84
 MSA Solution in Excel 2010

Program 8.2

Copyright © 2012 Pearson

Education 8-85
Management Sciences Association
 The following table summarizes the results of the MSA
analysis.
 It will cost MSA $15,166 to conduct this research.

REGION AGE ≤ 30 AGE 31-50 AGE ≥ 51

State bordering Mexico 0 600 140

State not bordering Mexico 1,000 0 560

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Education 8-86
Manufacturing Applications
 Production Mix
◦ LP can be used to plan the optimal mix of products to
manufacture.
◦ Company must meet a myriad of constraints, ranging
from financial concerns to sales demand to material
contracts to union labor demands.
◦ Its primary goal is to generate the largest profit
possible.

Copyright © 2012 Pearson

Education 8-87
 Fifth Avenue Industries
 Fifth Avenue Industries produces four varieties of ties:
◦ One is expensive all-silk
◦ One is all-polyester
◦ Two are polyester and cotton blends
 The table on the below shows the cost and availability of
the three materials used in the production process:

MATERIAL AVAILABLE PER

MATERIAL COST PER YARD ($) MONTH (YARDS)
Silk 24 1,200
Polyester 6 3,000
Cotton 9 1,600
Copyright © 2012 Pearson
Education 8-88
 Fifth Avenue Industries
 The firm has contracts with several major department
store chains to supply ties.
 Contracts require a minimum number of ties but may be
increased if demand increases.
 Fifth Avenue’s goal is to maximize monthly profit given the
following decision variables.

X1 = number of all-silk ties produced per month

X2 = number all-polyester ties
X3 = number of blend 1 polyester-cotton ties
X4 = number of blend 2 silk-cotton ties

Copyright © 2012 Pearson

Education 8-89
 Fifth Avenue Industries Data

MATERIAL
SELLING MONTHLY REQUIRED
VARIETY OF PRICE PER CONTRACT MONTHLY PER TIE MATERIAL
TIE TIE ($) MINIMUM DEMAND (YARDS) REQUIREMENTS
All silk 19.24 5,000 7,000 0.125 100% silk

All polyester 8.70 10,000 14,000 0.08 100% polyester

Poly – cotton 50% polyester –

9.52 13,000 16,000 0.10
blend 1 50% cotton

Silk-cotton 60% silk - 40%

10.64 5,000 8,500 0.11
blend 2 cotton

Table 8.1

Copyright © 2012 Pearson

Education 8-90
 Fifth Avenue Industries
 Fifth Avenue also has to calculate profit per tie for the
objective function.

SELLING MATERIAL MATERIAL

PRICE REQUIRED PER COST PER COST PER PROFIT
VARIETY OF TIE PER TIE ($) TIE (YARDS) YARD ($) TIE ($) PER TIE ($)
All silk $19.24 0.125 $24 $3.00 $16.24
All polyester $8.70 0.08 $6 $0.48 $8.22
Poly-cotton
$9.52 0.05 $6 $0.30
blend 1
0.05 $9 $0.45 $8.77
Silk – cotton
$10.64 0.06 $24 $1.44
blend 2
0.06 $9 $0.54 $8.66

Copyright © 2012 Pearson

Education 8-91
 Fifth Avenue Industries
The complete Fifth Avenue Industries Model
Objective function
Maximize profit = $16.24X1 + $8.22X2 + $8.77X3 + $8.66X4
Subject to 0.125X1+ 0.066X4 ≤ 1200 (yds of silk)
0.08X2 + 0.05X3 ≤ 3,000 (yds of polyester)
0.05X3 + 0.44X4 ≤ 1,600 (yds of cotton)
X1 ≥ 5,000 (contract min for silk)
X1 ≤ 7,000 (contract min)
X2 ≥ 10,000 (contract min for all polyester)
X2 ≤ 14,000 (contract max)
X3 ≥ 13,000 (contract mini for blend 1)
X3 ≤ 16,000 (contract max)
X4 ≥ 5,000 (contract mini for blend 2)
X4 ≤ 8,500 (contract max)
X1, X2, X3, X4 ≥ 0
Copyright © 2012 Pearson
Education 8-92
 Fifth Avenue Solution in Excel
2010

Program 8.3

Copyright © 2012 Pearson

Education 8-93
 Manufacturing Applications
 Production Scheduling
◦ Setting a low-cost production schedule over a period of
weeks or months is a difficult and important
management task.
◦ Important factors include labor capacity, inventory and
storage costs, space limitations, product demand, and
labor relations.
◦ When more than one product is produced, the
scheduling process can be quite complex.
◦ The problem resembles the product mix model for
each time period in the future.

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Education 8-94
 Greenberg Motors
 Greenberg Motors, Inc. manufactures two different
electric motors for sale under contract to Drexel Corp.
 Drexel places orders three times a year for four months
at a time.
 Demand varies month to month as shown below.
 Greenberg wants to develop its production plan for the
next four months.

MODEL JANUARY FEBRUARY MARCH APRIL

GM3A 800 700 1,000 1,100
GM3B 1,000 1,200 1,400 1,400

Table 8.2
Copyright © 2012 Pearson
Education 8-95
 Greenberg Motors
 Production planning at Greenberg must consider four
factors:
◦ Desirability of producing the same number of motors each month
to simplify planning and scheduling.
◦ Necessity to keep inventory carrying costs down.
◦ Warehouse limitations.
◦ Its no-lay-off policy.
 LP is a useful tool for creating a minimum total cost
schedule the resolves conflicts between these factors.

Copyright © 2012 Pearson

Education 8-96
 Greenberg Motors

Ai = Number of model GM3A motors produced in month i

(i = 1, 2, 3, 4 for January – April)
Bi = Number of model GM3B motors produced in month i

 It costs $20 to produce a GM3A and $15 to

produce a GM3B
 Both costs increase by 10% on March 1, thus

Cost of production = $20A1 + $20A2 + $22A3 + $22A4

+ $15B1 + $15B2 + $16.50B3 + $16.50B4

Copyright © 2012 Pearson

Education 8-97
 Greenberg Motors
 We can use the same approach to create the portion of the objective
function dealing with inventory carrying costs.
IAi= Units of GM3A left in inventory at the end of month i (i
= 1, 2, 3, 4 for January – April)
IBi= Units of GM3B left in inventory at the end of month i (i
= 1, 2, 3, 4 for January – April)

 The carrying cost for GM3A motors is $0.36 per

unit per month and the GM3B costs $0.26 per unit
per month.
 Monthly ending inventory levels are used for the
average inventory level.
Cost of carrying inventory = $0.36A1 + $0.36A2 + $0.36A3 + 0.36A4
+ $0.26B1 Pearson
Copyright © 2012
+ $0.26B2 + $0.26B3 + $0.26B4
Education 8-98
 Greenberg Motors
We combine these two for the objective function:
Minimize total cost = $20A1 + $20A2 + $22A3 + 22A4
+ $15B1 + $15B2 + $16.50B3 + $16.50B4
+ $0.36IA1 + $0.36IA2 + $0.36IA3 + 0.36IA4
+ $0.26IB1 + $0.26IB2 + $0.26IB3 + $0.26IB4

End of month inventory is calculated using this

relationship:

Inventory Current
Inventory at Sales to
at the end month’s
of last + production – the end of = Drexel this
this month month
month

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Education 8-99
 Greenberg Motors
 Greenberg is starting a new four-month production cycle
with a change in design specification that left no old
motors in stock on January 1.
 Given January demand for both motors:

IA1 = 0 + A1 – 800
IB1 = 0 + B1 – 1,000
 Rewritten as January’s constraints:

A1 – IA1 = 800
B1 – IB1 = 1,000

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Education 8-100
 Greenberg Motors
Constraints for February, March, and April:
A2 + IA1 – IA2 = 700 February GM3A demand
B2 + IB1 – IB2 = 1,200 February GM3B demand
A3 + IA2 – IA3 = 1,000 March GM3A demand
B3 + IB2 – IB3 = 1,400 March GM3B demand
A4 + IA3 – IA4 = 1,100 April GM3A demand
B4 + IB3 – IB4 = 1,400 April GM3B demand

And constraints for April’s ending inventory:

IA4 = 450
IB4 = 300
Copyright © 2012 Pearson
Education 8-101
 Greenberg Motors
 We also need constraints for warehouse space:
IA1 + IB1 ≤ 3,300
IA2 + IB2 ≤ 3,300
IA3 + IB3 ≤ 3,300
IA4 + IB4 ≤ 3,300
 No worker is ever laid off so Greenberg has a
base employment level of 2,240 labor hours per
month.
 By adding temporary workers, available labor
hours can be increased to 2,560 hours per month.
 Each GM3A motor requires 1.3 labor hours and
each GM3B requires 0.9 hours.
Copyright © 2012 Pearson
Education 8-102
 Greenberg Motors
Labor hour constraints:
1.3A1 + 0.9B1 ≥ 2,240 (January min hrs/month)
1.3A1 + 0.9B1 ≤ 2,560 (January max hrs/month)
1.3A2 + 0.9B2 ≥ 2,240 (February labor min)
1.3A2 + 0.9B2 ≤ 2,560 (February labor max)
1.3A3 + 0.9B3 ≥ 2,240 (March labor min)
1.3A3 + 0.9B3 ≤ 2,560 (March labor max)
1.3A4 + 0.9B4 ≥ 2,240 (April labor min)
1.3A4 + 0.9B4 ≤ 2,560 (April labor max)
All variables ≥0 Nonnegativity constraints

Copyright © 2012 Pearson

Education 8-103
 Greenberg Motors Solution in Excel
2010

Program 8.4

Copyright © 2012 Pearson

Education 8-104
 Greenberg Motors
Solution to Greenberg Motors Problem
PRODUCTION SCHEDULE JANUARY FEBRUARY MARCH APRIL

Units GM3A produced 1,277 223 1,758 792

Units GM3B produced 1,000 2,522 78 1,700

Inventory GM3A carried 477 0 758 450

Inventory GM3B carried 0 1,322 0 300

Labor hours required 2,560 2,560 2,355 2,560

Table 8.3
 Total cost for this four month period is
$169,294.90.
 Complete model has 16 variables and 22
constraints.
Copyright © 2012 Pearson
Education 8-105
 Employee Scheduling Applications

 Labor Planning
 These problems address staffing needs over a
particular time.
 They are especially useful when there is some
flexibility in assigning workers that require
overlapping or interchangeable talents.

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Education 8-106
 Hong Kong Bank of Commerce and
Industry
 Hong Kong Bank of Commerce and Industry has
requirements for between 10 and 18 tellers
depending on the time of day.
 Lunch time from noon to 2 pm is generally the
busiest.
 The bank employs 12 full-time tellers but has
many part-time workers available.
 Part-time workers must put in exactly four hours
per day, can start anytime between 9 am and 1
pm, and are inexpensive.
 Full-time workers work from 9 am to 3 pm and
have 1 hour for lunch.
Copyright © 2012 Pearson
Education 8-107
 Hong Kong Bank of Commerce and
Industry
Labor requirements for Hong Kong Bank of
Commerce and Industry

TIME PERIOD NUMBER OF TELLERS REQUIRED

9 am – 10 am 10
10 am – 11 am 12
11 am – Noon 14
Noon – 1 pm 16
1 pm – 2 pm 18
2 pm – 3 pm 17
3 pm – 4 pm 15
4 pm – 5 pm 10

Table 8.4
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Education 8-108
 Hong Kong Bank of Commerce and
Industry
 Part-time hours are limited to a maximum of 50%
of the day’s total requirements.
 Part-timers earn $8 per hour on average.
 Full-timers earn $100 per day on average.
 The bank wants a schedule that will minimize
total personnel costs.
 It will release one or more of its part-time tellers if
it is profitable to do so.

Copyright © 2012 Pearson

Education 8-109
 Hong Kong Bank of Commerce and
Industry
Let
F = full-time tellers
P1 = part-timers starting at 9 am (leaving at 1 pm)
P2 = part-timers starting at 10 am (leaving at 2 pm)
P3 = part-timers starting at 11 am (leaving at 3 pm)
P4 = part-timers starting at noon (leaving at 4 pm)
P5 = part-timers starting at 1 pm (leaving at 5 pm)

Copyright © 2012 Pearson

Education 8-110
 Hong Kong Bank of Commerce and
Industry
Objective:
Minimize total daily
personnel cost = $100F + $32(P1 + P2 + P3 + P4 + P5)
subject to:
F + P1 ≥ 10 (9 am – 10 am needs)
F + P1 + P2 ≥ 12 (10 am – 11 am needs)
0.5F + P1 + P2 + P3 ≥ 14 (11 am – noon needs)
0.5F + P1 + P2 + P3 + P4 ≥ 16 (noon – 1 pm needs)
F + P2 + P3 + P4 + P5 ≥ 18 (1 pm – 2 pm needs)
F + P3 + P4 + P5 ≥ 17 (2 pm – 3 pm needs)
F + P4 + P5 ≥ 15 (3 pm – 4 pm needs)
F + P5 ≥ 10 (4 pm – 5 pm needs)
F ≤ 12 (12 full-time tellers)
4P1 + 4P2 + 4P3 + 4P4 + 4P5 ≤ 0.50(112) (max 50% part-timers)
4, P5 ≥ ©02012 Pearson
P1, P2, P3, PCopyright
Education 8-111
 Hong Kong Bank of Commerce and
Industry
 There are several alternate optimal schedules
Hong Kong Bank can follow:
 F = 10, P2 = 2, P3 = 7, P4 = 5, P1, P5 = 0
 F = 10, P1 = 6, P2 = 1, P3 = 2, P4 = 5, P5 = 0
 The cost of either of these two policies is $1,448
per day.

Copyright © 2012 Pearson

Education 8-112
 Labor Planning Solution in Excel
2010

Program 8.5

Copyright © 2012 Pearson

Education 8-113
 Financial Applications
 Portfolio Selection
◦ Bank, investment funds, and insurance companies often
have to select specific investments from a variety of
alternatives.
◦ The manager’s overall objective is generally to maximize
the potential return on the investment given a set of
legal, policy, or risk restraints.

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Education 8-114
 International City Trust
 International City Trust (ICT) invests in short-term trade
credits, corporate bonds, gold stocks, and construction
loans.
 The board of directors has placed limits on how much can
be invested in each area:

INTEREST MAXIMUM INVESTMENT

INVESTMENT EARNED (%) ($ MILLIONS)
Trade credit 7 1.0
Corporate bonds 11 2.5
Gold stocks 19 1.5
Construction loans 15 1.8

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Education 8-115
 International City Trust
 ICT has $5 million to invest and wants to accomplish two
things:
◦ Maximize the return on investment over the next six months.
◦ Satisfy the diversification requirements set by the board.
 The board has also decided that at least 55% of the funds
must be invested in gold stocks and construction loans
and no less than 15% be invested in trade credit.

Copyright © 2012 Pearson

Education 8-116
 International City Trust
The variables in the model are:

X1 = dollars invested in trade credit

X2 = dollars invested in corporate bonds
X3 = dollars invested in gold stocks
X4 = dollars invested in construction loans

Copyright © 2012 Pearson

Education 8-117
 International City Trust
Objective:
Maximize
dollars of
interest = 0.07X1 + 0.11X2 + 0.19X3 + 0.15X4
earned

subject to: X1 ≤ 1,000,000

X2 ≤ 2,500,000
X3 ≤ 1,500,000
X4 ≤ 1,800,000
X3 + X4 ≥ 0.55(X1 + X2 + X3 + X4)
X1 ≥ 0.15(X1 + X2 + X3 + X4)
X1 + X2 + X3 + X4 ≤ 5,000,000
X1, X2, X3, X4 ≥ 0
Copyright © 2012 Pearson
Education 8-118
 International City Trust
 The optimal solution to the ICT is to make the following
investments:
X1 = $750,000
X2 = $950,000
X3 = $1,500,000
X4 = $1,800,000
 The total interest earned with this plan is $712,000.

Copyright © 2012 Pearson

Education 8-119
 ICT Portfolio Solution in Excel 2010

Program 8.6

Copyright © 2012 Pearson

Education 8-120
 Truck Loading Problem
 Truck Loading Problem
◦ The truck loading problem involves deciding which
items to load on a truck so as to maximize the value of
a load shipped.
◦ Goodman Shipping has to ship the following six items:

ITEM VALUE ($) WEIGHT (POUNDS)

1 22,500 7,500
2 24,000 7,500
3 8,000 3,000
4 9,500 3,500
5 11,500 4,000
6 9,750 3,500
Copyright © 2012 Pearson
Education 8-121
 Goodman Shipping
 The objective is to maximize the value of items loaded
into the truck.
 The truck has a capacity of 10,000 pounds.
 The decision variable is:
Xi = proportion of each item i loaded on the truck

Copyright © 2012 Pearson

Education 8-122
 Goodman Shipping
Objective:
Maximize $22,500X1 + $24,000X2 + $8,000X3
=
load value + $9,500X4 + $11,500X5 + $9,750X6
subject to
7,500X1 + 7,500X2 + 3,000X3
+ 3,500X4 + 4,000X5 + 3,500X6 ≤ 10,000 lb capacity
X1 ≤1
X2 ≤1
X3 ≤1
X4 ≤1
X5 ≤1
X6 ≤1
X1, X2, X3, X4, X5, X6 ≥0
Copyright © 2012 Pearson
Education 8-123
 Goodman Truck Loading Solution in
Excel

Program 8.7

Copyright © 2012 Pearson

Education 8-124
 Goodman Shipping
 The Goodman Shipping problem raises an interesting
issue:
◦ The solution calls for one third of Item 1 to be loaded on the
truck.
◦ What if Item 1 cannot be divided into smaller pieces?
 Rounding down leaves unused capacity on the truck and
results in a value of $24,000.
 Rounding up is not possible since this would exceed the
capacity of the truck.
 Using integer programming, in which the solution is
required to contain only integers, the solution is to load
one unit of Items 3, 4, and 6 for a value of $27,250.
Copyright © 2012 Pearson
Education 8-125
Ingredient Blending Applications

 Diet Problems
◦ This is one of the earliest LP applications, and is used to
determine the most economical diet for hospital
patients.
◦ This is also known as the feed mix problem.

Copyright © 2012 Pearson

Education 8-126
Whole Food Nutrition Center

 The Whole Food Nutrition Center uses three bulk grains

to blend a natural cereal.
 It advertises that the cereal meets the U.S. Recommended
Daily Allowance (USRDA) for four key nutrients.
 It wants to select the blend that will meet the
requirements at the minimum cost.

NUTRIENT USRDA
Protein 3 units
Riboflavin 2 units
Phosphorus 1 unit
Magnesium 0.425 unit

Copyright © 2012 Pearson

Education 8-127
Whole Food Nutrition Center

Let
XA = pounds of grain A in one 2-ounce serving of cereal
XB = pounds of grain B in one 2-ounce serving of cereal
XC = pounds of grain C in one 2-ounce serving of cereal

Whole Food’s Natural Cereal requirements:

COST PER PROTEIN RIBOFLAVIN PHOSPHOROUS MAGNESIUM
GRAIN POUND (CENTS) (UNITS/LB) (UNITS/LB) (UNITS/LB) (UNITS/LB)
A 33 22 16 8 5
B 47 28 14 7 0
C 38 21 25 9 6

Table 8.5
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Education 8-128
Whole Food Nutrition Center

The objective is:

Minimize total cost of
mixing a 2-ounce serving = $0.33XA + $0.47XB + $0.38XC

subject to
22XA + 28XB + 21XC ≥ 3 (protein units)
16XA + 14XB + 25XC ≥ 2 (riboflavin units)
8XA + 7XB + 9XC ≥ 1 (phosphorous units)
5XA + 0XB + 6XC ≥ 0.425 (magnesium units)
XA + XB + XC = 0.125 (total mix)
XA, XB, XC ≥ 0

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Education 8-129
 Whole Food Diet Solution in Excel 2010

Program 8.8

Copyright © 2012 Pearson

Education 8-130
Ingredient Blending Applications

 Ingredient Mix and Blending Problems

◦ Diet and feed mix problems are special cases of a more
general class of problems known as ingredient or
blending problems.
◦ Blending problems arise when decisions must be made
regarding the blending of two or more resources to
produce one or more product.
◦ Resources may contain essential ingredients that must
be blended so that a specified percentage is in the final
mix.

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Education 8-131
Low Knock Oil Company
 The Low Knock Oil Company produces two grades of
cut-rate gasoline for industrial distribution.
 The two grades, regular and economy, are created by
blending two different types of crude oil.
 The crude oil differs in cost and in its content of crucial
ingredients.

CRUDE OIL TYPE INGREDIENT A (%) INGREDIENT B (%) COST/BARREL ($)

X100 35 55 30.00
X220 60 25 34.80

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Education 8-132
Low Knock Oil Company
The firm lets
X1 = barrels of crude X100 blended to produce the
refined regular
X2 = barrels of crude X100 blended to produce the
refined economy
X3 = barrels of crude X220 blended to produce the
refined regular
X4 = barrels of crude X220 blended to produce the
refined economy

The objective function is

Minimize cost = $30X1 + $30X2 + $34.80X3 + $34.80X4

Copyright © 2012 Pearson

Education 8-133
Low Knock Oil Company
Problem formulation
At least 45% of each barrel of regular must be ingredient A
(X1 + X3) = total amount of crude blended to produce
the refined regular gasoline demand
Thus,
0.45(X1 + X3) = amount of ingredient A required
But:
0.35X1 + 0.60X3 = amount of ingredient A in refined regular gas

So
0.35X1 + 0.60X3 ≥ 0.45X1 + 0.45X3
or
– 0.10X1 + 0.15X3 ≥ 0 (ingredient A in regular constraint)
Copyright © 2012 Pearson
Education 8-134
Low Knock Oil Company
Problem formulation

Minimize cost = 30X1 + 30X2 + 34.80X3 + 34.80X4

subject to X1 + X3 ≥ 25,000
X2 + X4 ≥ 32,000
– 0.10X1 + 0.15X3 ≥0
0.05X2 – 0.25X4 ≤ 0
X1, X2, X3, X4 ≥ 0

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Education 8-135
 Low Knock Oil Solution in Excel 2010

Program 8.9

Copyright © 2012 Pearson

Education 8-136
Transportation Applications
 Shipping Problem
◦ The transportation or shipping problem involves
determining the amount of goods or items to be
transported from a number of origins to a number of
destinations.
◦ The objective usually is to minimize total shipping
costs or distances.
◦ This is a specific case of LP and a special algorithm
has been developed to solve it.

Copyright © 2012 Pearson

Education 8-137
 Top Speed Bicycle Company
 The Top Speed Bicycle Co. manufactures and markets a line
of 10-speed bicycles.
 The firm has final assembly plants in two cities where labor
costs are low.
 It has three major warehouses near large markets.
 The sales requirements for the next year are:
◦ New York – 10,000 bicycles
◦ Chicago – 8,000 bicycles
◦ Los Angeles – 15,000 bicycles
 The factory capacities are:
◦ New Orleans – 20,000 bicycles
◦ Omaha – 15,000 bicycles
Copyright © 2012 Pearson
Education 8-138
 Top Speed Bicycle Company
The cost of shipping bicycles from the plants to the
warehouses is different for each plant and warehouse:

TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans $2 $3 $5

Omaha $3 $1 $4

The company wants to develop a shipping schedule

that will minimize its total annual cost.

Copyright © 2012 Pearson

Education 8-139
 Top Speed Bicycle Company
Network Representation of the Transportation Problem with
Costs, Demands, and Supplies

Figure 8.1

Copyright © 2012 Pearson

Education 8-140
 Top Speed Bicycle Company
The double subscript variables will represent the origin factory
and the destination warehouse:
Xij = bicycles shipped from factory i to warehouse j
So:
X11 = number of bicycles shipped from New Orleans to New York
X12 = number of bicycles shipped from New Orleans to Chicago
X13 = number of bicycles shipped from New Orleans to Los Angeles
X21 = number of bicycles shipped from Omaha to New York
X22 = number of bicycles shipped from Omaha to Chicago
X23 = number of bicycles shipped from Omaha to Los Angeles

Copyright © 2012 Pearson

Education 8-141
 Top Speed Bicycle Company
Objective:
Minimize
total
shipping = 2X11 + 3X12 + 5X13 + 3X21 + 1X22 + 4X23
costs

subject to X11 + X21 = 10,000 (New York demand)

X12 + X22 = 8,000 (Chicago demand)
X13 + X23 = 15,000 (Los Angeles demand)
X11 + X12 + X13 ≤ 20,000 (New Orleans factory supply)
X21 + X22 + X23 ≤ 15,000 (Omaha factory supply)
All variables ≥ 0

Copyright © 2012 Pearson

Education 8-142
 Top Speed Bicycle Company
Solution in Excel 2010

Program 8.10

Copyright © 2012 Pearson

Education 8-143
 Top Speed Bicycle Company
Top Speed Bicycle solution:
TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans 10,000 0 8,000
Omaha 0 8,000 7,000

 Total shipping cost equals $96,000.

 Transportation problems are a special case of LP as the
coefficients for every variable in the constraint equations
equal 1.

Copyright © 2012 Pearson

Education 8-144
 Copyright

All rights reserved. No part of this publication may be

reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.

8-
Copyright © 2012 Pearson Education 145
 8-
Copyright © 2012 Pearson Education 146
LINEAR
PROGRAMMI
NG
APPLICATIO
NS
Marketing Application
Manufacturing Application
Employee Scheduling Application
Financial Application
Ingredient Blending Application
Transportation Application
Media Selection
Marketing
Research
 Linear programming models have been used in the
advertising field as a decision aid in selecting an effective
media mix.
 Media selection problems can be approached with LP from
two perspectives:
◦ Maximize audience exposure.
◦ Minimize advertising costs.
 Win Big Gambling
Club
 The Win Big Gambling Club promotes gambling
junkets to the Bahamas.
 It has $8,000 per week to spend on local
advertising.
 Its goal is to reach the largest possible high-
potential audience.
 It needs to place at least five radio spots per week.
 No more than $1,800 can be spent on radio
advertising each week.
 Win Big Gambling
Club
Advertising options

AUDIENCE REACHED COST PER AD MAXIMUM ADS PER

MEDIUM PER AD ($) WEEK
TV spot (1 minute) 5,000 800 12

Daily newspaper (full-page ad) 8,500 925 5

Radio spot (30 seconds, prime

2,400 290 25
time)
Radio spot (1 minute,
2,800 380 20
afternoon)
 Win Big Gambling
Club
The problem formulation is
X1 = number of 1-minute TV spots each week
X2 = number of daily paper ads each week
X3 = number of 30-second radio spots each week
X4 = number of 1-minute radio spots each week
Objective:
Maximize audience coverage = 5,000X1 + 8,500X2 +
2,400X3 + 2,800X4
Subject to X1 ≤ 12 (max TV spots/wk)
X2 ≤ 5 (max newspaper ads/wk)
X3 ≤ 25 (max 30-sec radio spots
ads/wk)
X4 ≤ 20 (max newspaper ads/wk)
800X1 + 925X2 + 290X3 + 380X4 ≤ $8,000 (weekly
advertising budget)
X3 + X4 ≥ 5 (min radio spots contracted)
290X3 + 380X4 ≤ $1,800 (max dollars spent on
radio)
X1, X2, X3, X4 ≥ 0
 Win Big Gambling
Club AUDIENC
MAXI
MUM
ADS
The problem formulation is E COST PER
REACHED PER WEE
X1 = number of 1-minute TV spots each week MEDIUM PER AD AD ($) K
X2 = number of daily paper ads each week TV spot (1
5,000 800 12
X3 = number of 30-second radio spots each week minute)
X4 = number of 1-minute radio spots each week Daily
newspaper
Objective: (full-page
8,500 925 5
Maximize audience coverage = 5,000X1 + 8,500X2 + ad)
2,400X3 + 2,800X4 Radio spot
(30
Subject to X1 ≤ 12 (max TV spots/wk) seconds, 2,400 290 25
X2 ≤ 5 (max newspaper ads/wk) prime
time)
X3 ≤ 25 (max 30-sec radio spots
ads/wk) Radio spot
X4 ≤ 20 (max newspaper ads/wk) (1 minute, 2,800 380 20
afternoon)
800X1 + 925X2 + 290X3 + 380X4 ≤ $8,000 (weekly
advertising budget)
X3 + X4 ≥ 5 (min radio spots contracted)
290X3 + 380X4 ≤ $1,800 (max dollars spent on
radio)
X1, X2, X3, X4 ≥ 0
▪ Linear programming has also been applied to
marketing research problems and the area of
consumer research.
▪ Statistical pollsters can use LP to help make
strategy decisions.
Production Mix
Production
Scheduling
◦ LP can be used to plan the optimal mix of products to
manufacture.
◦ Company must meet a myriad of constraints, ranging
from financial concerns to sales demand to material
contracts to union labor demands.
◦ Its primary goal is to generate the largest profit possible.
◦ Setting a low-cost production schedule over a period of
weeks or months is a difficult and important
management task.
◦ Important factors include labor capacity, inventory and
storage costs, space limitations, product demand, and
labor relations.
◦ When more than one product is produced, the
scheduling process can be quite complex.
◦ The problem resembles the product mix model for each
time period in the future.
 Labor Planning
 These problems address
staffing needs over a
particular time.
 They are especially useful
when there is some flexibility
in assigning workers that
require overlapping or
interchangeable talents.
Copyright ©2012 Pearson Education, 7-
Inc. publishing as Prentice Hall 160
FINANCIAL APPLICATIONS
PORTFOLIO SELECTION

- Bank, investment funds, and insurance companies often

have to select specific investments from a variety of
alternatives.

- The manager’s overall objective is generally to maximize

the potential return on the investment given a set of legal,
policy, or risk restraints.
 International City Trust
 ICT has $5 million to invest and wants to accomplish two things:
◦ Maximize the return on investment over the next six months.
◦ Satisfy the diversification requirements set by the board.
 The board has also decided that at least 55% of the funds must be
invested in gold stocks and construction loans and no less than 15% be
invested in trade credit.
International City Trust
The variables in the model are:

X1 = dollars invested in trade credit

X2 = dollars invested in corporate bonds
X3 = dollars invested in gold stocks
X4 = dollars invested in construction loans
International City Trust
Objective:
Maximize
dollars of
interest = 0.07X1 + 0.11X2 + 0.19X3 + 0.15X4
earned

subject to: X1 ≤ 1,000,000

X2 ≤ 2,500,000
X3 ≤ 1,500,000
X4 ≤ 1,800,000
X3 + X4 ≥ 0.55(X1 + X2 + X3 + X4)
X1 ≥ 0.15(X1 + X2 + X3 + X4)
X1 + X2 + X3 + X4 ≤ 5,000,000
X1, X2, X3, X4 ≥ 0
International City Trust
 The optimal solution to the ICT is to make the following investments:
X1 = $750,000
X2 = $950,000
X3 = $1,500,000
X4 = $1,800,000
 The total interest earned with this plan is $712,000.
ICT Portfolio Solution in Excel
TRUCK LOADING PROBLEM
- The truck loading problem involves deciding which
items to load on a truck so as to maximize the value
of a load shipped.
Goodman Shipping has to ship the following six
items:

ITEM VALUE ($) WEIGHT (POUNDS)

1 22,500 7,500

2 24,000 7,500

3 8,000 3,000

4 9,500 3,500

5 11,500 4,000

6 9,750 3,500
Goodman Shipping
 The objective is to maximize the value of items loaded into the truck.
 The truck has a capacity of 10,000 pounds.
 The decision variable is:
Xi = proportion of each item i loaded on the truck
Goodman Shipping
Objective:

Maximize load $22,500X1 + $24,000X2 + $8,000X3

=
value
+ $9,500X4 + $11,500X5 + $9,750X6
subject to
7,500X1 + 7,500X2 + 3,000X3
+ 3,500X4 + 4,000X5 + 3,500X6 ≤ 10,000 lb
capacity
X1 ≤1
X2 ≤1
X3 ≤1
X4 ≤1
X5 ≤1
X6 ≤1
X1, X2, X3, X4, X5, X6 ≥0
Goodman Truck Loading Solution in
Excel
Goodman Shipping
 The Goodman Shipping problem raises an interesting issue:
◦ The solution calls for one third of Item 1 to be loaded on the truck.
◦ What if Item 1 cannot be divided into smaller pieces?
 Rounding down leaves unused capacity on the truck and results in a
value of $24,000.
 Rounding up is not possible since this would exceed the capacity of the
truck.
 Using integer programming, in which the solution is required to contain
only integers, the solution is to load one unit of Items 3, 4, and 6 for a
value of $27,250.
INGREDIENT BLENDING APPLICATIONS
• Diet Problems
- This is one of the earliest LP applications, and is used to
determine the most economical diet for hospital patients.

- This is also known as the feed mix problem.

Whole Food Nutrition Center
 The Whole Food Nutrition Center uses three bulk grains to blend a
natural cereal.
 It advertises that the cereal meets the U.S. Recommended Daily
Allowance (USRDA) for four key nutrients.
 It wants to select the blend that will meet the requirements at the
minimum cost.

NUTRIENT USRDA
Protein 3 units
Riboflavin 2 units
Phosphorus 1 unit
Magnesium 0.425 unit
Whole Food Nutrition Center

Let
XA = pounds of grain A in one 2-ounce serving of cereal
XB = pounds of grain B in one 2-ounce serving of cereal
XC = pounds of grain C in one 2-ounce serving of cereal

Whole Food’s Natural Cereal requirements:

COST PER MAGNESIU
POUND PROTEIN RIBOFLAVIN PHOSPHOROU M
GRAIN (CENTS) (UNITS/LB) (UNITS/LB) S (UNITS/LB) (UNITS/LB)
A 33 22 16 8 5
B 47 28 14 7 0
C 38 21 25 9 6
Whole Food Nutrition Center
The objective is:

Minimize total cost of mixing a 2-

ounce serving = $0.33XA + $0.47XB + $0.38XC

subject to
22XA + 28XB + 21XC ≥ 3 (protein units)
16XA + 14XB + 25XC ≥ 2 (riboflavin units)
8XA + 7XB + 9XC ≥ 1 (phosphorous units)
5X A + 0XB + 6XC ≥ 0.425 (magnesium units)
XA + XB + XC = 0.125 (total mix)
XA, XB, XC ≥ 0
Whole Food Diet Solution in Excel
INGREDIENT MIX AND BLENDING PROBLEMS

Diet and feed mix problems are special cases of a more

general class of problems known as ingredient or blending
problems.

Blending problems arise when decisions must be made

regarding the blending of two or more resources to produce
one or more product.

Resources may contain essential ingredients that must be

blended so that a specified percentage is in the final mix.
TRANSPORTATION APPLICATIONS
The transportation or shipping problem involves determining
the amount of goods or items to be transported from a
number of origins to a number of destinations.

The objective usually is to minimize total shipping costs or

distances.

This is a specific case of LP and a special algorithm has been

developed to solve it.
Top Speed Bicycle Company
 The Top Speed Bicycle Co. manufactures and markets a line of 10-speed
bicycles.
 The firm has final assembly plants in two cities where labor costs are low.
 It has three major warehouses near large markets.
 The sales requirements for the next year are:
◦ New York – 10,000 bicycles
◦ Chicago – 8,000 bicycles
◦ Los Angeles – 15,000 bicycles
 The factory capacities are:
◦ New Orleans – 20,000 bicycles
◦ Omaha – 15,000 bicycles
Top Speed Bicycle Company
The cost of shipping bicycles from the plants to the warehouses is different
for each plant and warehouse:

TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans $2 $3 $5

Omaha $3 $1 $4

The company wants to develop a shipping schedule that will minimize its
total annual cost.
Top Speed Bicycle Company
The double subscript variables will represent the origin factory and the destination
warehouse:
Xij = bicycles shipped from factory i to warehouse j
So:
X11 = number of bicycles shipped from New Orleans to New York
X12 = number of bicycles shipped from New Orleans to Chicago
X13 = number of bicycles shipped from New Orleans to Los Angeles
X21 = number of bicycles shipped from Omaha to New York
X22 = number of bicycles shipped from Omaha to Chicago
X23 = number of bicycles shipped from Omaha to Los Angeles
Top Speed Bicycle Company
Objective:

Minimize total
shipping costs = 2X11 + 3X12 + 5X13 + 3X21 + 1X22 + 4X23

subject to X11 + X21 = 10,000 (New York demand)

X12 + X22 = 8,000 (Chicago demand)
X13 + X23 = 15,000 (Los Angeles demand)
X11 + X12 + X13 ≤ 20,000 (New Orleans factory supply)
X21 + X22 + X23 ≤ 15,000 (Omaha factory supply)
All variables ≥ 0
Top Speed Bicycle Company
Solution in Excel
Top Speed Bicycle Company
Top Speed Bicycle solution:

TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans 10,000 0 8,000
Omaha 0 8,000 7,000

 Total shipping cost equals $96,000.

 Transportation problems are a special case of LP as the coefficients for
every variable in the constraint equations equal 1.
bye