Problem Set 4

Question 1 [35 pts] Wine LP

Consider the problem of planting a certain acreage of vines of different varietals.
You can make wines that have a different amount of each type of grape blend and
there is a certain market that you can serve with the different wines which have
different values. You can also use different processes to make the wine, such as
fermentation in steel vessels, fermentation in steel vessels followed by barrel
fermentation, steel + fermentation in the bottle. These are required and we have
limited vessel space and warehouse space and barrels (plus they cost a certain
amount).
The following table defines the red wines and the percentages of the grapes that
they contain.

Cabernet
Franc
Reserve
Cabernet
Sauvignon
Reserve
Cabernet
Sauvignon
Merlot
Reserve
Merlot
Nebiollo
Reserve
Octagon
Petit Verdot
Reserve

Cabernet
Franc
92

Cabernet
Sauvignon

Nebiollo

Merlot

Petit Verdot
8

85

15

100
95
10

90
100
20

55
80

45

In addition we have the following information about their manufacturing

requirements

Cabernet Franc
Reserve
Cabernet
Sauvignon
Reserve
Cabernet
Sauvignon

Stainless
Steel
Fermentation
(days)
10

French Oak Barrel

Fermentation
(months)

12

10

13

Merlot Reserve
Merlot
Nebiollo
Reserve
Octagon
Petit Verdot
Reserve

9
6
8

12
7
12

8
9

12
12

Finally we have the value of the wines, in terms of the price per liter of the final
wine and the maximum demand that there is for the wine.
Price per
750mL Bottle
Cabernet Franc
Reserve
Cabernet
Sauvignon
Reserve
Cabernet
Sauvignon
Merlot Reserve
Merlot
Nebiollo
Reserve
Octagon
Petit Verdot
Reserve

25

Maximum
Market Size
(Bottles)
10000

35

12500

15

20000

32
13
35

5000
10000
2500

55
40

5000
3500

The goal is to maximize the value of the wines we make subject to a number of
constraints on the resources available.
Land the number of acres available to grow our grapes (this would be our
terroir). Initially we have 20 acres of vines.
Steel Fementers we have a certain number and size of fermenters to carry out the
initial fermentation. Initially we have 3 3000 liter fermenters.
Oak Barrels we have a certain number of oak barrels available for the final
fermentation and aging step. Initially we have 200 225 liter fermenters.
These resources constrain the problem in terms of the amount of grapes that can be
grown and hence the amount of wine that can be made.
The yield is 4 tons (not tonnes) of grapes per acre and each ton of grapes produces
150 gallons of wine.
The initial fermentation must be carried out within a 45 day period and hence there
are a total number of fermenter-days available.

The oak barrels constrain the fermentation in the same way with a certain number
of barrel-months available based on the number of barrels and that we have to use
the barrels for the time required and that this is the annual availability of barrels.

a) Assuming you have only the limitation on the number of acres available to
plant vines, what would be the optimal solution to your planting? How much
money would you make on the bottles that you sold?
b) Now assume you have the maximum market demand constraints for each
wine. How does that change the planting and which wine(s) are not sold out?
How much money do you make?
c) Now include the constraints on the fermenter capacity and the barrel
capacity. Does this change the solution?
d) You are given the following options and costs for an expansion plan for the
vineyard and winery. These are all possible options and you should maximize
the value of the wine minus their cost. If you purchase more acres, you are
not allowed to reduce the number of acres planted for each grape varietal
below the value for part (c). Report the number of acres, fermenters, barrels
and whether or not to do the marketing campaign.
Option
Buy more acreage

Variable Type
Real Value

Buy more fermenters

Integer

Buy more barrels

Marketing Campaign

Cost
350,000 annualized
at 35,000
250,000 installed
22,500 annualized
100 per barrel
20,000

Real Value
Binary increases maximum
in the market by 5% for
each wine.
e) There are many other constraints that a winery could face - such as labor.
How would you formulate a labor constraint for the problem? What data
would you need?
f) It turns out that there can be substantial variation in the yield of the grapes
per acre. Assume the above yields are nominal but that an actual yield can
be 10 to 115% of the nominal value and this can be different for each grape
type. Assume that you have planted the grapes according to part (c) so the
planted acres are fixed but now the yielded liters will be different for each
grape varietal depending on the random yield. Create a new problem where
the yield is random and optimize the wine you make with fixed acres. Run
your model 10 times and find the average and standard deviation of your
wine value.
g) Given this random yield, it might be better to buy and plant more acres of
vines. Find a new value for the number of acres that maximizes your overall
average wine value. Describe how you did this and your new average value.

Problem 2 [10 pts] Branch and Bound

Answer the following TRUE/FALSE questions. 3 points for each correct answer and
-1 for each incorrect answer, use the tree below for the problem assuming it is a
maximization problem and all information has been fully propagated.
i.
ii.
iii.
iv.
v.

Upper Bound of the root node =

Lower Bound of the root node = 75

Node D can be pruned by bounding
Node C can be pruned by infeasibility
Node B can be pruned by bounding

Z 105
Z 85

Z 90

C
Z 80
Z 75

D
Z

Question 3 [20 pts]- MILP and sharp separations

Consider the binary tree below where components ABCD are split sharply into the
individual components. Sketch the separation sequence that is consistent with this
tree.

ABCD

BCD

BC

B
Let

y 1
0

binary variable where 1 means a sharp split between two subsets of

components and has been performed, where the lowest volatility in set is the
next highest volatility to the most volatile component in set is performed, zero
otherwise.

x 1
0

binary variable where 1 means component subset exists in the

separation sequence as the product of a column or as the overall feed and zero
otherwise.

z 1
0

binary variable where 1 means component subset exists in the

separation sequence as a final product.

F the flowrate of final product for subset

Ffeed constant where the value is the sum of the flow of components in subset
in the feed

C constant equal to the cost of performing the split between subset and .
P

constant equal to the value of the product subset.

x y

a) Explain why the constraint

the problem, where

is a necessary and valid constraint for

is the union of subsets and .

b) Explain how the constraints

x y

and

x y

are derived to represent the statement "if a sharp split

between component subsets and is performed, then subsets and

exist in the separation."

x y

c) Explain why the constraints

and

x y

are not valid constraints

for the problem by providing a counter example using an overall set of

components ABCD and a sharp separation sequence.
d) Explain why if a subset of consecutive volatility species is to be produced as
a final product that the implication below is valid.

z NOT ( y y y
1

n1

n1

n2

where

i ni=

andi represents the first i

elements of and n-i represents the rest. Also show that even though the

above is valid, it is not sufficient to guarantee that is produced as a final

product and give the constraint that must be added to make that guarantee.
e) Write down for a sharp separation problem, the mixed integer expressions
(not the logical expressions) that represent
i.
The constraint(s) that represent the sharp separations that can be
performed on the feed ABCD. You need consider only the sharp
separations on the feed and not the subsets that are formed from it.
ii.
The constraint(s) that the bottoms of the first column is a final product
iii.
The constraint(s) that either AB or BC must be produced as a final
product but not both.
iv.
The constraint(s) that if AB is produced as a final product then C must
be produced as a final product
v.
The constraint(s) that if BC is produced as a final product then A must
be produced as a final product
vi.
If a final product is made then the flowrate is equal to the flowrate of
those components in the feed, otherwise it is zero.
vii.
The objective function which is to maximize the system revenue as
represented by the flowrates of the final products minus the costs of
performing the sharp separations. All pure components and the two
component subsets identified in (iv) and (v) are possible final products.

Question 4 - 15 points
Consider the following set of states and actions in Table 1. Each action has a value
that is different in each state and each state can arise with a given probability,
given in Table 2.
Vs1
Vs2
Vs3
A1
-10
0
10
A2
-15
-5
25
A3
-20
5
25
A4
0
0
0
Table 1 - Actions A1 to A4 and their values in states S1 to S3
Ps1

Ps2
Ps3
0.3
0.5
0.2
Table 2 - Probabilities of States S1 to S3
Given a risk neutral decision maker, which action should they choose?
Question 5 - Multistage decision making - 20 points
Consider the following two stage decision problem. The first stage there are two
possible decisions that are made in state S0, D1 and D2. The value of taking these
actions in this state depend on the next state that is reached which in this case is
one of S1 or S2, the values are given in Table 3 below. State S0 evolves into states
S1 and S2 with a certain probability independent of the choice of actions, given in
Table 4 below.
S0
Vs1
Vs2
D1
2
3
D2
4
2.5
Table 3 - Decisions D1 and D2 which have values dependent on states S1 and S2
Ps1

Ps2
0.3
0.7
Table 4 - Probabilities of states S1 and S2
In states S1 and S2 two possible decisions can be made, DA and DB, which are the
same decisions in each state but whose value depends on the states into which S1
and S2 evolve. These are for S1, S11 and S12 and for S2, S21 and S22, each with a
different probability of occurring. The value tables and the probabilities are given in
Table 5 and Table 6 below.
S1
Vs11
Vs12
S2
Vs21
Vs22
DA1
3
4 DA2
2
5
DB1
5
3 DB2
3
5
Table 5 - Value of two decisions, DA, DB made either in state S1 or in S2 based on
the resultant states S11 to S22.
Ps11

Ps12

Ps21

Ps22

0.2
0.8
0.6
0.4
Table 6 - Probabilities of states S11 and S12 from S1 and S21 and S22 from S2.
A decision maker has to decide a pair of decisions to take, for example D1
and DA, before any of the state information is revealed other than being
in state S0. Evaluate the expected value of each possible pair of decisions
and make a selection on the basis of the pair with the highest expected
value.