Quantitative Methods

in Management
(Operations Research)

Linear Programming

Josephine Q. Borja, PhD

 Introduction
Linear programming (LP)
 a widely used mathematical modeling technique
 designed to help managers in planning and
decision making
 a technique that helps in resource allocation
decisions

Programming refers to
 modeling and solving a problem mathematically.

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 Introduction
Linear programming (LP)
 Development of a production schedule that will:
 Satisfy future demands for a firm’s production
 Minimize total production and inventory cost

 Selection of a product mix in a factory that will:

 Make best use of machine hours and labor hours
available
 Maximize the firm’s products

 Determination of grades of petroleum products

to yield the maximum profit

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 Introduction
Linear programming (LP)
 Selection of different blends of raw materials to
feed mills to produce finished feed
combinations at minimum cost

 Determination of distribution system that will

minimize total shipping cost from several
warehouses to various market locations

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 Introduction
Basic Assumptions in LP
 Certainty
 numbers in the objective and constraints are known
with certainty and do not change during the period
being studied

 Proportionality
 Exists in the objective and constraints
 Constancy between production increases and
resource utilization

 Additivity
 Total of all activities equals the sum of individual
activities

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 Introduction
Basic Assumptions in LP
 Divisibility
 Solutions need not be in whole numbers
 Solutions are divisible and may take any fractional
value

 Non-negativity
 All answers or variables are greater than or equal to
zero.
 Negative values of physical quantities are impossible

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 Formulating Linear Programming Problems

1. Completely understand the managerial

problem
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 Linear Programming Problems

Basic Components
1. Decision variables that we seek to determine
2. Objective (goal) that we need to optimize
(maximize or minimize)
3. Constraints that solution must satisfy

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 Two-Variable LP Model (Graphical Method)

Reddy Mix produces both interior and exterior paints from

two raw materials M1 and M2. The following table provides
the basic data for the problem

Raw Material Tons of raw material per ton of: Maximum daily
Exterior paint Interior paint availability, tons

M1 6 4 24
M2 1 2 6
Profit per Ton
5 4
($1000)

A market survey indicates that the daily demand for

interior paint can not exceed that for exterior paint by
more than 1 ton. Also, the maximum daily demand for
interior paint is 2 tons. Reddy Mix wants to determine the
optimum product mix of interior and exterior paint that
maximizes the total daily profit.
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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem (Maximization)
• Variables of the Model
x1  Tons of exterior paint produced daily
x2  Tons of interior paint produced daily

• Objective Function: maximize total daily profit (z)

maximize z  5x1  4 x2

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Constraints
Usage of M1 by both paints  6 x1  4 x2 tons/day

Usage of M2 by both paints  x1  2x2 tons/day

6 x1  4 x2  24 (Raw material M1)

x1  2 x2  6 (Raw material M2)

x2  x1  1 (Market limit)

x2  2 (Demand limit)

x1  0, x2  0 (Non-negativity restrictions)

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Complete Model
maximize : z  5x1  4 x2
Subject to

6 x1  4 x2  24 Raw M aterial1
x1  2 x2  6 Raw M aterial 2
 x1  x2  1 M arket Limit
x2  2 Demand Limit
x1  0; x2  0 Non - negativity

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 Two-Variable LP Model (Graphical Method)
X2 Reddy Mix Problem
• Determination of the Feasible Solution Space
6

5 Line 1: 6x1 + 4x2 ≤ 24

4 Line 2: x1 + 2x2 ≤ 6

3 Line 3: -x1 + x2 ≤ 1

2 Line 4: x2 ≤ 2

1 Feasible Non-negativity:
Region x1  0; x2  0
0
-1 1 2 3 4 5 6 7 X1

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Maximize Objective Function
– Look for direction of increasing Z
maximize z  5x1  4 x2
1. Select an arbitrary values of Z and substitute to
the objective function.
2. Plot the objective function. Any point on the line
that is within the feasible region will give a profit
equal to the selected arbitrary value.
3. Repeat (1) and (2) but using higher values of z.
Take note that the line must lie within the feasible
region.
*Note that profit lines are parallel to each other, and
lines with higher profit contributions are farther
from the origin.
4. The values of M1 and M2 are determined at the
point corresponding to the highest profit.

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 Sensitivity Analysis
• Optimal solutions to LP have been determined
under deterministic assumptions.
• Conditions in most real world situations are
dynamic and changing.
• After an optimal solution to a problem is found,
input data values are varied to assess the
sensitivity of the optimal solution to this changes.
• Sensitivity analysis determines the effect on
optimal solution of changes in parameter values of
the objective function and constraint equations.
• Changes may be reactions to anticipated
uncertainties in the parameters or the new or
changed information concerning the model.

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 Role of Sensitivity Analysis
of the Optimal Solution
• Is the optimal solution sensitive to changes in
input parameters?
• Possible reasons for asking the question:
– Parameter values were only best estimates.
– Dynamic environment may cause changes
– “What if” analysis provide economical and
operational information.

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 Sensitivity Analysis of Objective
Function Coefficients
• Ranges of Optimality
– The value of the objective function will change if
the coefficient multiplies a variable whose value is
non-zero.
– The optimal solution will remain unchanged as long
as
• An objective function coefficient lies within its range
of optimality
• There are no changes in any other input parameters

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 Sensitivity Analysis of Objective
Function Coefficients
• The optimality range for an objective coefficient is
the range of values over which the current optimal
solution point will remain optimal.
• For 2-variable LP problems the optimality ranges
of the objective function coefficients can be found
by setting the slope of the objective function equal
to the slopes of each of the binding constraints.

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Change in coefficient of objective Function
maximize z C1x1  C2 x2
– If C1 and C2 changes, the optimal corner point maybe
possibly changed
– As long as the slope of Z is within the slope of Eq. 1 &
Eq. 2, the optimal point is unchanged
7
6 Linear (1)
5 M1: 6x1 + 4x2 ≤ 24
4
Linear (2)
3
M2: x1 + 2x2 ≤ 6
2
1
0
-2 0 2 4 6 8
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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– If C1  0, then 4 C2 2
 
6 C1 1
Objective function can not be horizontal

– If C2  0, then 1 C1 6
 
2 C2 4
Objective function can not be vertical

– As long as the ratio are within the specified range the

optimum point remains unchanged

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Optimal range for one of the coefficients
– Given C2 = 4, what is the optimal range of C1?

1 C1 6
  2  C1  6
2 C2 4

– Given C1 = 5, what is the optimal range of C2

4 C2 2 20
   C2  10
6 C1 1 6

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Change in availability of resources
– Amount of M1 at the intersections (2,2) and (6,0),
corresponding to the line for M1

Usage of M1 by both paints  6 x1  4 x2 tons/day

M1: 6x1 + 4x2 ≤ 24
M2: x1 + 2x2 ≤ 6 at (2,2): M1 = (6 x 2) + (4 x 2) = 20
at (6,0): M1 = (6 x 6) + (4 x 0) = 36
7
6 – Given M2 = 6, the feasibility range for M1 is
5
4 20  M1  36
3 Since M1 = 24, it can be decreased by 4 or increased
2 by 12
1
0
-2 0 2 4 6 8

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Change in availability of resources
– Given M1 = 24, the feasibility range for M1 is delineated
by
Usage of M2 by both paints  x1  2x2 tons/day
M1: 6x1 + 4x2 ≤ 24
Amount of M1 at the intersections (4,0) and (8/3,2),
M2: x1 + 2x2 ≤ 6 corresponding to the line for M2

7 at (4,0): M2 = 4 + 0 =4
6 at (8/3,2): M2 = 8/3 + (2 x 2) = 20/3
5
4 4  M 2  20 / 3
3
2 Since M2= 6, it can be decreased by 2 or increased by 2/3
1
0
-2 0 2 4 6 8

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Unit worth of a resource – rate of change in the optimum
objective that results from making changes in the
available amount of a resource.

change in Z corresponding to the feasible range of resource

y
feasible range of resource

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Feasible Range of M1:
20  M1  36
change in Z from (2,2) to (6,0)
y
change in M 1 (2,2) to (6,0)
Z at (2,2): Z = (5 x 2) + (4 x 2) = 18
Z at (6,0): Z = (5 x 6) + (4 x 0) = 30

30  18
y  0.75
36  20
Therefore, 1 ton change in the range 20  M1  36
will change the optimum Z by 750

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 Two-Variable LP Model (Graphical Method)
Reddy Mix Problem
• Sensitivity Analysis
– Feasible Range of M2:
4  M 2  20 / 3
change in Z from (4,0) to (8 / 3,2)
y
change in M 2 (4,0) to (8 / 3,2)
Z at (4,0): Z = (5 x 4) + (4 x 0) = 20
Z at (8/3,2): Z = (5 x 8/3) + (4 x 2) = 64/3

64 / 3  20
y  0.50
20 / 3  4
Therefore, 1 ton change in the range 4  M 2  20 / 3
will change the optimum Z by 500

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 Two-Variable LP Model
Reddy Mix Problem
• Slack Variables
– Any unused or idle capacity associated with the
constraint

Constraint Amount Material Unused

(material) required Available material
M1 24
M2 6

Amount required is based on optimal solution

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 Multiple Changes

• The range of optimality is valid only when a single

objective function coefficient changes.
• When more than one variable changes, the 100%
rule applies

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 Multiple Changes – 100% Rule

• For increase (decrease) in an objective function

coefficient, calculate (and express as a percentage)
the ratio of the change in the coefficient to the
maximum possible increase (decrease) as
determined by the limits of the range of optimality.
• Sum all these percentage changes. If the total is
less than or equal to 100%, the optimal solution
will not change. If this total is greater than 100%,
the optimal solution may change.

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 Two-Variable LP Model (Graphical Method)
Minimization Problem
M&D Chemicals produces two products that are sold
as raw materials to companies manufacturing both
bath soaps and laundry detergents. Based on the
analysis of current inventory levels and potential
demand for the coming month, M&D’s management
has specified that 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. Product A requires 2
hours of processing per gallon while product B requires
1 hour of processing time per gallon, and for the
coming month, 600 hours of processing time are
available. M&D’s objective is to satisfy these
requirements at a minimum total production cost.
Production costs are $2 per gallon of product A and $3
per gallon of product B.

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 Two-Variable LP Model (Graphical Method)
M&D Minimization Problem
Decision Variables:
A = number of gallons of product A
B = number of gallons of product B
Objective Function:
Minimize: Z = 2A + 3B
Constraints:
1A  125 demand for product A
1A + 2B  350 total production
2A + 1B ≤ 600 processing time limit
A, B  0 non-negativity

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 Two-Variable LP Model (Graphical Method)
M&D Minimization Problem
700
Linear ((2) A + B = 350)
600 Linear ((1) A = 125)
Linear ((1) A = 125)
500

400

300

200

100

0
0 100 200 300 400

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 Introduction to Simplex Method
 Convert inequalities to equalities
  constraint
 Right-hand side represents the limit on the
availability of a resource
 Difference between the right-hand side and
the left-hand side represents unused or slack
amount of resources
 To convert  to an equation, a non-negative
slack variable is added to the left-hand side

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 Introduction to Simplex Method
 Convert inequalities to equalities
 ≥ constraint
 Set a lower limit on the activities of the LP
 amount by which the left-hand side
exceeds the minimum limit represents a
surplus
 to convert ≥ to an equation, a non-
negative surplus variable is subtracted
from the left-hand side

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 Introduction to Simplex Method
 Example

6x1 + 4x2  24
6x1 + 4x2 + S1 = 24

x1 + x2 ≥ 800
X1 + X2 – S1 = 800

 The right-hand side of the equation must be

non-negative. If it is negative, multiply the
whole equation with (- 1)

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 Transition from Graphical to Algebraic
Solution

Let m = number of equations

n = number of variables
If m = n and equations are consistent, system has
only one solution
If m  n, the system of equation (if consistent)
yields infinite solution
In a set of m x n equations (m  n), if n-m variables
is set to zero and solve the m equation for the
remaining m variables, the resulting solution if
unique, must correspond to the corner point of
the solution space.

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 Transition from Graphical to Algebraic
Solution

Example:
Maximize Z = 2x1 + 3x2
Subject to:
2x1 + x2  4
x1 + 2x2  5
x1, x2 ≥ 0
2x1 + x2 + S1 = 4
x1 + 2x2 + S2 = 5
m = 2 equations
n = 4 variables (x1, x2, S1, S2)

Set n – m = 4 - 2 = 2 variables to zero and solve the

remaining n = 2 variables

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 Transition from Graphical to Algebraic
Solution

Example:
 Set n - m variables to zero to target a specific
corner point
 Which n – m variable?
 consider all combinations in which n – m
variables are set to zero and solve the resulting
equation
 the optimum solution is the feasible corner point
that yields the best objective value.
 n – m variables that are set to zero are known as
non-basic variables
 If the remaining variables have a unique solution
they are called basic variables.

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 Transition from Graphical to Algebraic
Solution

Non-basic Basic Basic Associated Feasible? Objective

(zero Variables solution corner pt. Yes or No value, Z
variables)
X1, X2 S1, S2
X1, S1 X2, S2
X1, S2 X2, S1
X2, S1 X1, S2
X2, S2 X1, S1
S1, S2 X1, X2

Basic solution represents the values of the basic variables

given that the non-basic variables are set to zero

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 Simplex Method
Rather than enumerating all the basic solutions
(corner points) of the LP problem, the Simplex
method investigates only a “select few” of these
solutions
 Iterative nature of the Simplex method
 From the solution space, start at the origin
where the decision variables are zero and Z = 0.
 Increase one decision variable at a time and
solve for Z.
 For example, if X1 is increased, it will reach a
corner point. Once this point is reached,
increase X2 to reach an improved corner point.
The largest positive objective coefficient is first
targeted for increase

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 Simplex Method
Reddy Mix Problem

OF: maximize Z = 5X1 + 4X2

Starting from origin, increase the
7
value of the variable with the most
6x1 + 4x2 ≤ 24
positive coefficient. In this case, it
6 is X1. x1 + 2x2 ≤ 6
-x1 + x2 ≤ 1
5 x2 ≤ 2

2
C
1
Feasible solution space
A B X1
0
-2 -1 0 1 2 3 4 5 6 7
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 Simplex Method
Changes in Basic and Non-Basic Variables

pt. A B C

Non-basic X 1, X 2 S1 , X 2 S1 , S 2

Basic S1 , S2 X 1 , S2 X 1, X 2

S1 leaves S2 leaves

– At pt. A, S1, S2 are basic; X1, X2 are non-basic

– X1 is increased above zero to reach pt. B
– Simultaneously, S1 will become non-basic and assumes
zero value at pt. B

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 Simplex Method
Reddy Mix Problem
• Complete Model

maximize z  5x1  4 x2
Subject to
6 x1  4 x2  24
x1  2 x2  6
 x1  x2  1
x2  2
x1  0, x2  0

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 Simplex Method
Reddy Mix Problem
• Complete Model
maximize z  5x1  4 x2  0S1  0S2  0S3  0S4
Objective function : z  5x1  4 x2  0
Subject to: 6 x  4 x  S  24
1 2 1
x1  0, x2  0
x1  2 x2  S2  6
 x1  x2  S3  1
x2  S4  2
Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 -5 -4 0 0 0 0 0
S1 0 6 4 1 0 0 0 24
S2 0 1 2 0 1 0 0 6
S3 0 -1 1 0 0 1 0 1
S4 0 0 1 0 0 0 1 2
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 Simplex Method
 Optimality Condition: The entering variable in a
maximization (minimization) problem is the non-basic
variable with the most negative (positive) coefficient in the
Z-row. Ties are broken arbitrarily. The optimum is reached
at the iteration where all the Z-row coefficients of the non-
basic variables are non-negative (non-positive)

 Feasibility Condition – For both maximization and

minimization problems, the leaving variable is the basic
variable associated with the smallest non-negative ratio
(with strictly positive denominator) Ties are broken
arbitrarily.

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 Simplex Method
 Gauss-Jordan Row Operation

1. Pivot Row
a. replace the leaving variable in the Basic column with
the entering variable.
b. New pivot row = current pivot row divided by pivot
element
2. All other rows including Z
New Row =
(current row) – (pivot column coefficient)(new pivot row)

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 Simplex Method
 Steps

1. Determine a starting basic feasible solution

2. Select an entering variable using the optimality condition

(most negative/positive coefficient in the Z-row). Stop if
there is no entering variable . The last solution is optimal.
Else, go to step 3.

3. Select a leaving variable using the feasibility condition

(smallest non-negative ratio)

4. Determine the new basic solution by using the appropriate

Gauss-Jordan computations. Go to step 2.

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 Simplex Method

 Select the non-basic variable with the most negative

coefficient as the entering variable.
 Calculate the ratio of the solution to the coefficient of
the entering variable.
 The basic variable corresponding to the minimum
non-negative ratio becomes the leaving variable.
 The rule associated with the ratio computation is
referred to as the feasibility condition.
 The row of the leaving variable becomes the pivot
row and the column of the entering variable is the
pivot column. The intersection of the pivot row and
pivot column is the pivot element.

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 Simplex Method
Simplex Tableau

Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 -5 -4 0 0 0 0 0
S1 0 6 4 1 0 0 0 24
S2 0 1 2 0 1 0 0 6
S3 0 -1 1 0 0 1 0 1
S4 0 0 1 0 0 0 1 2

 The non-basic variable corresponding to the most

negative value is X1. This is the entering variable.

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 Simplex Method

Basic X1 Soln Ratio

S1 6 24 X1 = 24/6 = 4 (minimum)
S2 1 6 X1 = 6/1 = 6
S3 -1 1 X1 = 1/-1 = -1 (ignore)
S4 0 2 X1 = 2/0 =  (ignore)

 The basic variable corresponding to the minimum non-

negative ratio becomes the leaving variable. This is S1.
 The S1 row becomes the pivot row and the X1 column
is the pivot column. The intersection of the pivot row
and pivot column is the pivot element.

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 Simplex Method
Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 -5 -4 0 0 0 0 0
S1 0 6 4 1 0 0 0 24
S2 0 1 2 0 1 0 0 6
S3 0 -1 1 0 0 1 0 1
S4 0 0 1 0 0 0 1 2

1. Pivot Row
 Replace the leaving variable in the Basic column with
the entering variable
 New pivot row = Current pivot row  Pivot element
2. All other rows including z
 New row =
(Current row) – (its pivot column coef.)(new pivot row)

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 Simplex Method
Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 0 -2/3 5/6 0 0 0 20
X1 0 1 2/3 1/6 0 0 0 4
S2 0 0 4/3 -1/6 1 0 0 2
S3 0 0 5/3 1/6 0 1 0 5
S4 0 0 1 0 0 0 1 2
Using optimality condition, X2 is the entering variable.

Basic X2 Soln Ratio

X1 -2/3 4 X2 = 4/(2/3) = 6
S2 4/3 2 X2 = 2/(4/3) = 1.5 (min)
S3 5/3 5 X2 = 5/(5/3) = 3
S4 1 2 X2 = 2/1 = 2
Using feasibility condition, S2 is the leaving variable and.
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 Simplex Method
Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 0 -2/3 5/6 0 0 0 20
X1 0 1 2/3 1/6 0 0 0 4
S2 0 0 4/3 -1/6 1 0 0 2
S3 0 0 5/3 1/6 0 1 0 5
S4 0 0 1 0 0 0 1 2

1. Pivot Row
 Replace the leaving variable in the Basic column with
the entering variable
 New pivot row = Current pivot row  Pivot element
2. All other rows including z
 New row =
(Current row) – (its pivot column coef.)(new pivot row)

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 Simplex Method
Basic Z X1 X2 S1 S2 S3 S4 Soln
Z 1 0 0 3/4 1/2 0 0 21
X1 0 1 0 1/4 -1/2 0 0 3
X2 0 0 1 -1/8 3/4 0 0 3/2
S3 0 0 0 3/8 -5/4 1 0 5/2
S4 0 0 0 1/8 -3/4 0 1 1/2
Based on optimality condition, none of the z-row
coefficient associated with the non-basic variables S1
and S2 are negative, hence the last tableau is optimal.

Basic Optimum Recommendation

value
X1 3 Produce 3 tons of exterior paint
X2 3/2 Produce 1.5 tons of exterior paint
Z 21 Daily profit is $21

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 Management Scientist: Reddy Mix
Optimal solution

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 Management Scientist: Reddy Mix

Slack – unused capacity.

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 Management Scientist: Reddy Mix

Reduced Cost – indicates by how much the objective

function coefficient of each decision variable would have to
improve before it would be possible for that variable to
assume a positive value in the optimal solution.

If the decision variable is already positive in the optimal

solution, its reduced cost is zero.

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 Management Scientist: Reddy Mix
For X1 (Exterior Paint): The range 2-6 provides the objective
function coefficient range for exterior paint. Assuming that all other
aspects of the original problem do not change, the profit
contribution of X1 can be from 2-6 per ton and the optimal solution
remains the same.

For X2 (Interior Paint): Assuming that the profit contribution of

X1 is $5/ton and all other aspects of the original problem remains
unchanged, the OF coefficient for X2 can be 3.33-10.

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 Management Scientist: Reddy Mix

Dual Price is the improvement in the value of the optimal solution

per unit increase in the right hand side of the constraint. For
constraint 1 (M1) the Dual Price is 0.75. This means that if we
increase the right hand side (RHS) of M1 by 1 ton, the value of the
optimal solution will improve by $0.75. Conversely, if we decrease
the RHS of M1 by 1 ton, the value of the optimal solution will
worsen by $0.75.

For constraints 3 & 4, the dual price are both zero. Increasing the
value of the RHS for these constraints will just add to the amount of
slack and will not change the value of the optimal solution.
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 Exercise
RMC Inc. is a small firm that produces a variety of chemical-
based products. In a particular production process, three raw
materials are used to produce two products: a fuel additive and
a solvent base. The fuel additive is sold to oil companies and is
used in the production of gasoline and related fuels. The
solvent base is sold to a variety of chemical firms and is used
in both home and industrial cleaning products. The three raw
materials are blended to form the fuel additive and solvent base
as indicated in Table 1. RMC’s production is constrained by
the availability of three raw materials shown in the Table.
Requirement per ton of product Amount
Available
Fuel Solvent
Material
Additive Base
Material 1 0.4 0.5 20 tons
Material 2 0.2 5 tons
Material 3 0.6 0.3 21 tons
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 Exercise (RMC)
Because of spoilage and the nature of the production process,
any materials not used for current production are useless and
must be discarded.

The accounting department analyzed the production figures,

assigned all relevant costs, and arrived at prices for both
products that will result in a profit contribution of $40 for
every ton of fuel additive produced and $30 for every ton of
solvent bas produced. How many tons of each product should
be produced to maximize the total profit?

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 Exercise (RMC)
Let F = tons of fuel additive
S = tons of solvent base

LP M odel :
M aximize Z  40 F  30 S
Subject to : 0.4 F  0.5S  20 M aterial1
0.2 S  5 M aterial 2
0.6 F  0.3S  21 M aterial 3
F  0, S  0

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 Exercise (RMC)
Optimal solution

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 Exercise (RMC)

Slack – unused capacity.

Reduced Cost – indicates by how much the objective

function coefficient of each decision variable would have to
improve before it would be possible for that variable to
assume a positive value in the optimal solution.

If the decision variable is already positive in the optimal

solution, its reduced cost is zero.

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 Exercise (RMC)
For F (FUEL ADDITIVE): The range 24-60 provides the objective
function coefficient range for the fuel additive. Assuming that all
other aspects of the original problem do not change, the profit
contribution of F can be from 24 to 60 per ton and the optimal
solution remains the same.

For S (SOLVENT BASE): Assuming that the profit contribution of

F is $40/ton and all other aspects of the original problem remains
unchanged, the OF coefficient for S can be 20-50.

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 Exercise (RMC)
DV LL CV UL Allowable Allowable
decrease increase
F 24 40 60 16 20
S 20 30 50 10 20
Based on the assumption that only one objective function
coefficient changes at a time and all other aspects of the original
problem remains the same.
If there is simultaneous change in OF coefficient, apply the 100%
rule

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 Exercise (RMC)
DV LL CV UL Allowable Allowable
decrease increase
F 24 40 60 16 20
S 20 30 50 10 20

100% Rule for OF coefficient: For all OF coefficient that are

changed, if the sum of the percentages of the allowable increases
and allowable deceases is less than or equal to 100%, the
optimal solution will not change.

If profit contribution of F is increased to $48/ton and that of S is

decreased to $27/ton:
•Increase in F = 48-40 = 8; allowable increase = 20
% increase = (8/20)(100) = 40% of allowable increase
•Decrease in S = 30 – 27 = 3; allowable decrease = 10
% decrease = (3/10)(100) = 30%
•40% + 30%  100%, therefore optimal solution is not changed.

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 Exercise (RMC)
DUAL PRICE
•improvement in the value of the optimal solution per
unit increase in the RHS constant.
•Tells us what will happen to the value of the optimal
solution if we make 1 unit change in the RHS.

RHS Ranges (Constraints)

For one change at a time of the RHS ranges:
Suppose an additional 4.5 tons of M3 is available,
•constraint M3 becomes: 0.6F + 0.3S  25.5
•New optimal condition: F = 37.5 & S = 10
•Value of Optimal solution: $1800
•Original Optimal solution: $1600
•Increase in M3 increases the Optimal solution by
1800 – 1600 = 200
•Rate of increase of Optimal solution = 200/4.5 =
44.44 (Dual Price)

For M2, dual prixe is zero. This means that additional

unit of M2 will just add to the slack and will not change
the optimal solution.
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 Exercise (RMC)
• Dual price maybe applicable only to small
increases in the RHS. As more resources are
available and the RHS continue to increase, other
constraints will become binding.
• As long as the RHS of a constraint stays within its
corresponding RHS range, the dual price is
applicable.
• For M2, dual price of zero is applicable as long as
M2 is at least 4 tons.
Constraint LL CV UL Allowable Allowable
decrease increase
M1 14 20 21.5 6 1.5
M2 4 5 No UL 1
M3 18.75 21 30 2.25 9
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 Exercise (RMC)
Constraint LL CV UL Allowable Allowable
decrease increase
M1 14 20 21.5 6 1.5
M2 4 5 No UL 1
M3 18.75 21 30 2.25 9

• For simultaneous increase in RHS constant, 100% Rule

applies.
• Assume additional 0.5 ton of M1 and additional 4.5 tons of
M3.
• increase in M1 = (0.5/1.5)(100) = 33.33%
• increase in M3 = (4.5/9)(100) = 50%
• 33.3% + 50%  100%
• Dual price of M1 and M2 will not change.
• Improvement in the OF:
0.5(33.33) + 4.5(44.44) = 216.65

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 Minimization Problem
M&D Chemicals produces two products that are sold
as raw materials to companies manufacturing both
bath soaps and laundry detergents. Based on the
analysis of current inventory levels and potential
demand for the coming month, M&D’s management
has specified that 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. Product A requires 2
hours of processing per gallon while product B requires
1 hour of processing time per gallon, and for the
coming month, 600 hours of processing time are
available. M&D’s objective is to satisfy these
requirements at a minimum total production cost.
Production costs are $2 per gallon of product A and $3
per gallon of product B.

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 Minimization Problem
M&D Chemicals
Decision Variables:
A = number of gallons of product A
B = number of gallons of product B
Objective Function:
Minimize: Z = 2A + 3B
Constraints:
1A  125 demand for product A
1A + 2B  350 total production
2A + 1B ≤ 600 processing time limit
A, B  0 non-negativity

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1/26/2018 73
 More than 2 Decision Variables
RMC Problem
Let F = tons of fuel additive
S = tons of solvent base
LP M odel :
M aximize Z  40 F  30 S
Subject to : 0.4 F  0.5S  20 M aterial1
0.2 S  5 M aterial 2
0.6 F  0.3S  21 M aterial 3
F  0, S  0
Modified RMC Problem
Suppose that management also is considering producing a
carpet cleaning fluid. Estimates are that each ton of carpet
cleaning fluid will require 0.6 ton of material 1, 0.1 ton of
material 2, and 0.3 ton of material 3. The management believes
that the company will realize a profit contribution of $50 for
each ton of carpet cleaning fluid.
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 More than 2 Decision Variables
RMC Problem: Modified Model
Let F = tons of fuel additive
S = tons of solvent base
C = tons of carpet cleaning fluid

LP Model :
Maximize Z  40F  30S  50C
Subject to : 0.4 F  0.5S  0.6C  20 Material 1
0.2S  0.1C  5 Material 2
0.6F  0.3S  0.3C  21 Material 3
F  0, S  0 C  0

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 More than 2 Decision Variables

Coefficient of X2 in the OF
should be improved by at
least 12.5

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 More than 2 Decision Variables

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 LP Applications
• Blending Problems
• Production Management
– A Make-or-Buy Decision
– Production Scheduling
– Workforce Assignment
• Marketing Applications
– Media Selection
– Marketing Research
• Financial Applications
– Portfolio Selection
– Financial Planning
• Revenue Management

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 LP Applications
• Blending Problems
– Arise whenever a manager must decide how to
blend two or more resources to produce one or
more products
– The resources contain one or more essential
ingredients that must be blended into final
products that will contain specific percentage of
each.
– Management must decide how much of each
resource to purchase to satisfy product
specifications and product demands at minimum
cost

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 LP Applications
• Production Management
– Make-or-Buy Decision
• How much of each of several component parts a
company should manufacture and how much it
should purchase from an outside supplier.
– Production Scheduling
• Establishing an efficient low cost production
schedule for one or more products over several
time periods (weeks or months).
• Product mix problem for each of several periods
in the future
• The manager determines the production levels that
will allow the company to meet product demand
requirements given limitations on production
capacity, labor capacity, and storage space, while
minimizing total production cost.

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 LP Applications
• Marketing Applications
– Media Selection
• Allocation of fixed advertising budget to various
advertising media.
• The objective is to maximize reach, frequency,
and quality of exposure.
• Restriction on the allowable allocation usually
arise during consideration of company policy,
contract requirements, and media availability.
– Marketing Research
• Targets and quotas are established for the number
and types of respondents to be surveyed.
• The marketing firm’s objective is to conduct the
survey so as to meet the client’s needs at a
minimum cost.

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 LP Applications
• Financial Applications
– Portfolio Selection
• Involve situations in which a financial manager
must select specific investments, such as stocks
and bonds, from a variety of investment
alternatives.
• Managers of mutual funds, credit units, insurance
companies, and banks frequently encounter this
type of problem.
• The objective function for portfolio selection
problems usually is maximization of expected
return or minimization of risk.
• The constraints usually are restrictions on the type
of permissible investments, state laws, company
policy, maximum permissible risk, etc.

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 LP Applications
• Revenue Management
– Involves managing the short-term demand for a
fixed perishable inventory in order to maximize
the revenue potential for an organization.
– First developed by American Airlines to
determine how many airline flight seats to sell at
an early reservation discount fare and how many
airline flight seats to sell at full fare.
– The airline is able to increase its average number
of passengers per flight and maximize the total
revenue generated by the combined sale of
discount-fare and full-fare seats.
– Other applications include hotels, apartment
rentals, car rentals, cruise lines, and golf courses.

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 Blending Problem
Seastrand Oil Company produces two grades of gasoline: regular and
high octane. Both gasoline are produced by blending two types of
crude oil. Although both types of crude oil contain the two important
ingredients required to produce both gasoline, the percentage of
important ingredients in each type of crude oil differs, as does the cost
per gallon. The percentage of ingredients A and B in each type of
crude oil and the cost per gallon are shown:

Crude Oil Cost Ingredient A Ingredient B

1 $0.10 20% 60%
2 $0.15 50% 30%

Each gallon of regular gasoline must contain at least 40% of

ingredient A, whereas each gallon of high octane can contain at most
50% of ingredient B. Daily demand for regular and high octane
gasoline is 800,000 and 500,000 gallons, respectively. How many
gallons of each type of crude oil should be used in the two gasoline to
satisfy daily demand at a minimum cost?

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 Exercise (Edwards Manufacturing)
Edwards Manufacturing Co. purchases two component parts from
three different suppliers. The suppliers have limited capacity, and no
one supplier can meet all the company’s needs. In addition, the
suppliers charge different prices for the components. Component
price data (in price per unit) are as follows:
Supplier
Component 1 2 3
1 $12 $13 $14
2 $10 $11 $10
Each supplier has a limited capacity in terms of the total number of
components it can supply. However, as long as Edwards provides
sufficient advance orders, each supplier can devote its capacity to
component 1, component 2 or any combination of the two
components, if the total number of units ordered is within its capacity.
Supplier capacities are as follows:
Supplier 1 2 3
Capacity 600 1000 800

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 Exercise (Edwards Manufacturing)
If the Edwards production plan for the next period includes 1000 units
of component 1 and 800 units of component 2, what purchase do you
recommend? That is, how many units of each component should be
ordered from each supplier?

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 Exercise (Make-or-Buy Decision)
The Janders Company markets various business and engineering
products. Currently, Janders is preparing to introduce two new
calculators: one for the business market called the Financial Manager
and one for the engineering market called the Technician. Each
calculator has three components: a base, an electronic cartridge, and a
faceplate or top. The same base is used for both calculators, but the
cartridges and tops are different. All components can be manufactured
by the company or purchased from outside suppliers. The
manufacturing costs and purchase prices for the components are
summarized in the table below.

Cost per unit ($)

Component Manufacture
Purchase
(regular time)
Base 0.50 0.60
Financial cartridge 3.75 4.00
Technician cartridge 3.30 3.90
Financial top 0.60 0.65
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 Exercise (Make-or-Buy Decision)
Company forecasters indicate that 3000 Financial Manager
calculators and 2000 Technician calculators will be needed. However,
manufacturing capacity is limited. The company has 200 hours of
regular manufacturing time and 50 hours of overtime that can be
scheduled for the calculators. Overtime involves a premium at the
additional cost of $9 per hour. The manufacturing times (in minutes)
for the components are shown in the table below.

Component Manufacturing time per unit (min)

Base 1.0
Financial cartridge 3.0
Technician cartridge 2.5
Financial top 1.0
Technician top 1.5
The problem for Janders is to determine how many units of each
component to manufacture and how many units of components to
purchase.

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