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# Lecture 1 and 2 Material

## Instructor: K. Gita Ayu March 2, 2012

Model Formulation

The most challenging part from mathematical programming is to translate the problem into mathematical forms. A stream of examples are given in the following subsection to develop the essential modeling skills as well as to introduce some commonly used terminology and illustrate the wide range of model forms available. Three steps to formulate any optimization model: 1. Identify the decision variables 2. Dene the constraints (what limits decisions?) 3. Quantify the decision consequences to be maximized or minimized through objective function Step 2 and 3 are somewhat interchangeable depending on the preference of the analyst. However, due to its complexity in most cases, most OR analysts prefer to dene the constraints rst prior formulating the objective functions. Variable-type constraints specify the domain of the decision variables which commonly referred as sign restriction for the variables, e.g. URS (unrestricted sign), BIN (binary), or INT (integer). While main constraints specify the restrictions and interactions that limit the values of the decision variables excluding variable type. As a rule of thumb, if there are doubts about a constraint, then make sure that all terms in the constraint have the same units in both sides: left and right hand sides. Standard Model of an optimization has the form: min or max (Objective function(s)) s.t. (main constraints) (variable-type constraints) where s.t. stands for subject to A linear programming problem (LP) is an optimization problem for which:
maximize (or minimiz) a linear function of the decision variables, called objective function the values of the decision variables must satisfy a set of constraints and each must be a linear equality or inequality. sign restriction associated with each variable must be either nonnegative (xi 0) or unrestricted in sign (urs)

1.1

Oil Renery

An oil renery produces gasoline and heating oil from 2 crude materials A and B. Suppose there are 3 processors available and the consumption and output per production period is as follows: Processor Input Output Prot Crude A Crude B Gasoline Heating Oil P1 3 5 4 3 5 P2 1 1 1 1 7 P3 5 3 3 4 4

Suppose the prot for each barrel of gasoline and heating oil is \$4 and \$3 respectively. Determine the units of production using the three processors that will produce the highest prot for the company, assuming there are 8 million barrels of crude A and 5 million barrels of crude B. Solution Let i = {processor 1, processor 2, processor 3} Decision variables: xi = number of processor type i is used for production Objective function: Max z = 5x1 + 7x2 + 4x3 +(4)(4x1 + x2 + 3x3 ) +(3)(3x1 + x2 + 4x3 ) Constraints: s.t. 3x1 + x2 + 5x3 8 5x1 + x2 + 3x3 5 x1 , x2 , x3 0 (prot from using processor i ) (prot from gasoline produced using processor i ) (prot from heating oil produced using processor i ) (max # barrels of crude A is available for use) max # (barrels of crude B is available for use) (nonnegative constraint)

1.2

## Two Crude Petroleum (Rardin, p.24 )

Two Crude Petroleum (TCP) runs a small renery on the Texas coast. The renery distills crude petroleum from two sources, Saudi Arabia and Venezuela, into three main products: gasoline, jet fuel, and lubricants. The two crudes dier in chemical composition and thus yield dierent product mixes. Each barrel of Saudi crude yields 0.3 barrel of gasoline, 0.4 barrel of jet fuel, and 0.2 barrel of lubricants. On the other hand, each barrel of Venezuelan crude yields 0.4 barrel of gasoline but only 0.2 barrel of jet fuel and 0.3 barrel of lubricants. The remaining 10% of each barrel is lost to rening. The crudes also dier in cost and availability. TCP can purchase up to 9000 barrels per day from Saudi Arabia at \$20 per barrel. Up to 6000 barrels per day of Venezuelan petroleum are also available at the lower cost of \$15 per barrel because of the shorter transportation distance. TCPs contracts with independent distributors require it to produce 2000 barrels per day of gasoline, 1500 barrels per day of jet fuel, and 500 barrels per day of lubricants. How can these requirements be fullled most eciently?

Solution Decision variables: x1 = # barrels of Saudi crude rened per day (in thousand) x2 = # barrels of Venezuelan crude rened per day Objective function: Min z = 20x1 + 15x2 Constraints: s.t. .3x1 + .4x2 2.0 .4x1 + .2x2 1.5 .2x1 + .3x2 0.5 x1 9 x2 6 x1 , x2 0 (total cost) (gasoline requirement) (jet fuel requirement) (lubricant requirement) (Saudi availability) (Venezuelan availability) (nonnegative constraint)

1.3

Cardboard

A paper company produces cardboard boxes. Suppose cardboard comes in a xed area, c. We would like to produce a cardboard box of maximum volume. Write the model! Solution Decision variables: l = length of the box w = width of the box h = height of the box Objective function: Max z = lwh Constraints: s.t. 2(lw + wh + lh) c l, w, h 0

1.4

## Fencing (Rardin, p.26 )

Suppose that we wish to enclose a rectangular equipment yard by at most 80 meters of fencing. Formulate an optimization model to nd the design of maximum area. Solution Decision variables: l = length of the equipment yard (in meters) w = width of the equipment yard (in meters) Objective function: Max z = lw Constraints: s.t. 2(l + w) 80 l, w 0

## (enclosed area) (fence length) (nonnegative constraint)

1.5

Farmer Jane

Farmer Jane owns 45 acres of land. She is going to plant each acre with wheat or corn. Each acre planted with wheat yields \$200 prot; and each with corn yields \$300 prot. The labor and fertilizer used for each acre are given below. One hundred workers and 20 tons fertilizers are available. Labor (hrs) Fertilizer (tons) Wheat 3 2 Corn 2 4

Determine how Jane can maximize prot from her land! Solution Decision variables: W = # acres planted with wheat C = # acres planted with corn Objective function: Max z = 200W + 300C Constraints: s.t. W + C 45 3W + 2C 100 2W + 4C 20 W, C 0

prot (max acres of land which can be used) (available labor hours) (available fertilizers) (nonnegative constraint)

1.6

## Auto Company (Winston, p.60 )

An auto company manufactures cars and trucks. Each vehicle must be processed in the paint shop and body assembly shop. If the paint shop were only painting trucks, 40 per day could be painted. If it were only painting cars, 60 per day could be painted. The body shop can process 50 cars alone or 50 trucks alone per day. Assume the return from truck and car are 300 and 200, respectively; nd the production schedule for the company! Solution Decision variables: T = # trucks manufactured in one day C = # cars manufactured in one day Objective function: Max z = 300T + 200C Constraints: s.t. T /40 + C/60 1 T /50 + C/50 1 T, C 0

(return from selling trucks and cars) (max # trucks and # cars can be painted in one day) (max # trucks or # cars can be processed in the body shop in one day) (nonnegative constraint)

Common mistakes are made by writting the constraints as follows: T 40 and C 60 (max # trucks and # cars can be painted in one day) T 50 and C 50 (max # trucks or # cars can be processed in the body shop in one day) These constraints allows producing 40 trucks and 50 cars becomes a solution which violates: Body shop constraint can only paint at most 50 cars alone or 50 trucks alone in a day

Paint shop constraint if the paint shop were only painting trucks, 40 per day could be painted Remarks: if an alternative optimum occurs, use a secondary criterion to choose between optimal solutions, such technique is commonly known as goal programming.

1.7

## Auto Company (additional constraints:Winston, p.65 )

Suppose that auto dealers require that the auto company produce at least 30 trucks and 20 cars. Write the constraints! Solution T 30 C 20 (min # trucks should be manufactured in one day) (min # cars should be manufactured in one day)

1.8

## Diet Problem (Winston, p.68 )

My diet requires that all the food I eat come from one of the four basic food groups (chocolate cake, ice cream, soda, and cheesecake). At present, the following four foods are available for consumption: brownies, chocolate ice cream, cola, and pineapple cheesecake. Each brownie costs 50, each scoop of chocolate ice cream costs 20, each bottle of cola costs 30, and each piece of pineapple cheesecake costs 80. Each day, I must ingest at least 500 calories, 6 oz. of chocolate, 10 oz. of sugar, and 8 oz. of fat. The nutritional content per unit of each food is shown below. Calories (oz.) 400 200 150 500 Chocolate (oz.) 3 2 0 0 Sugar (oz.) 2 2 4 4 Fat (oz.) 2 4 1 5

Brownie Chocolate ice cream (1 scoop) Cola (1 bottle) Pineapple cheesecake (1 piece)

Formulate the LP model that can be used to satisfy my daily nutritional requirements at minimum cost. Solution Decision variables: B = # brownies consumed daily C = # scoops of chocolate ice cream consumed daily K = # bottles of cola consumed daily P = # pieces of pineapple cheesecake consumed daily Objective function: Min z = .5B + .2C + .3K + .8P Constraints: s.t. 400B + 200C + 150K + 500P 500 3B + 2C 6 2B + 2C + 4K + 4P 10 2B + 4C + K + 5P 8 B, C, K, P 0 (total cost) (min daily calories intake) (min daily chocolate intake) (min daily sugar intake) (min daily fat intake) (nonnegative constraint)

Remarks: A diet problem formulation fails to reect peoples desire for a tasty and varied diet. Linear programming has been used to plan institutional menus for a weekly or monthly period. Menu-planning models should contain constraints that reect tastiness and variety requirements. 5

1.9

## Work Scheduling (Winston, p.72 )

Mon Tue Wed Thu Fri Sat Sun # of full-time employees required 17 13 15 19 14 16 11

A post oce requires dierent numbers of full-time employees on dierent days of the week. The number of full-time employees required on each day is given on the table above. Union rules state that each full-time employee must work ve consecutive days and then receive two days o. For example, an employee who works Monday to Friday must be o on Saturday and Sunday. The post oce wants to meet its daily requirements using only full-time employees. Formulate an LP that the post oce can use to minimize the number of full-time employees that must be hired. Solution Let i = {Mon, Tue, Wed, Thu, Fri, Sat, Sun} Decision variables: xi = # full-time employees beginning work on day i Objective function: 7 Min z = i=1 xi Constraints: s.t. x1 + x4 + x5 + x6 + x7 17 x1 + x2 + x5 + x6 + x7 13 x1 + x2 + x3 + x6 + x7 15 x1 + x2 + x3 + x4 + x7 19 x1 + x2 + x3 + x4 + x5 14 x2 + x3 + x4 + x5 + x6 16 x3 + x4 + x5 + x6 + x7 11 xi 0, i xi INT, i

(total # full-time employees hired) (min # full-time employees (min # full-time employees (min # full-time employees (min # full-time employees (min # full-time employees (min # full-time employees (min # full-time employees (nonnegative constraint) needed needed needed needed needed needed needed on on on on on on on Monday) Tuesday) Wednesday) Thursday) Friday) Saturday) Sunday)

See the illustration below for further understanding on how the model above answer the post oce daily requirement. Starts on Mon Tue Wed Thu Fri Sat Sun Mon x Tue x x Wed x x x Thu x x x x Fri x x x x x Sat x x x x x Sun

x x x x

x x x

x x

x x x x x

The post oce is a static scheduling example because we assume the same schedule reoccuring every week. While in reality, demands change overtime so the post oce does not face the same situation each week (aka a dynamic scheduling problem).

In a case where number of variables are very large and computer might have diculty nding the exact solution, heuristic methods can be used to nd a good yet might not be optimum solution to the problem. The real world application of the scheduling problem is done by Krajewski, Ritzman, and McKenzie (1980) to determine the minimum-cost combination of part-time employees, full-time employees, and overtime labor needed to process each days checks by the end of the workday (10 p.m.). The major input to their model was a forecast of the number of checks arriving at the bank each hour which is produced using multiple regression.

1.10

## Project Selection (Winston, p.80 )

Star Oil Company is considering ve dierent investment opportunities. The cash outows and net present values (in millions of dollars) are given in table below. Star Oil has \$40 million available for investment at the present time (time 0); it estimates that one year from now (time 1) \$20 million will be available for investment. Star Oil may purchase any fraction of each investment. In this case, the cash outows and NPV are adjusted accordingly. For example, if Star Oil purchases one fth of investment 3, then a cash outow is 1/5(5) = \$1 million would be required at time 1. The one-fth share of investment 3 would yield an NPV of 1/5(16) = \$3.2 million. Star Oil wants to maximize the NPV that can be obtained by investing in investments 1-5. Formulate an LP that will help achieve this goal. Assume that any funds left over at time 0 cannot be used at time 1. Time 0 cash outow Time 1 cash outow NPV Inv. 1 11 3 13 Inv. 2 53 6 16 Inv. 3 5 5 16 Inv. 4 5 1 14 Inv. 5 29 34 39

Solution Let i = investment = {1, 2, 3, 4, 5} Decision variables: xi =fraction of investment i purchased Objective function: Max z = 13x1 + 16x2 + 16x3 + 14x4 + 39x5 Constraints: s.t. 11x1 + 53x2 + 5x3 + 5x4 + 29x5 40 3x1 + 6x2 + 5x3 + x4 + 34x5 20 xi 1, i xi 0, i (NPV) (time 0 available cash for use) (time 1 available cash for use) (max 100% in any investment) (nonnegative constraint)

1.11

Capital Budgeting

Consider two investments with varying cash ows: Cash ow at time (in 1000) 0 1 2 3 -6 -5 7 9 -8 -3 9 7

Investment 1 Investment 2

Assume at time 0, \$10,000 cash is available and at time 1, \$7000 is available. Suppose the interest rate is 0.1. Formulate an LP so as to obtain a solution which maximizes the NPV from these investments?

Solution The goal of this problem is to maximize the NPV (Net Present Value). Thus, NPV shall be calculated rst, prior writing the LP. NPV (inv 1) = = = NPV (inv 2) = = = -6 - 5(P/F, 10%, 1) + 7(P/F, 10%, 2) + 9(P/F. 10%, 3) -6 - 5(.909091) + 7(.826446) + 9(.751315) 2.001503 -8 - 3(P/F, 10%, 1) + 9(P/F, 10%, 2) + 7(P/F. 10%, 3) -8 - 3(.909091) + 9(.826446) + 7(.751315) 1.969947

Decision variables: X = fraction of investment 1 purchased Y = fraction of investment 2 purchased Objective function: Max z = 2.001503X + 1.969947Y Constraints: s.t. 6X + 8Y 10 5X + 3Y 7 X1 Y 1 X, Y 0

NPV (max available cash for use at time 0) (max available cash for use at time 1) (max 100% in investment 1) (max 100% in investment 2) (nonnegative constraint)

Indexing or subscripts permit representing collection of similar quantities with a single symbol. For example, {xi : i = 1, . . . , 10} represent 10 similar values with the same x name, distinguishing them with the index i. Indexing often simplify large-scale optimization models because it often provides the initial model organization and this becomes the rst step in formulating a large optimization model. It is usually necessary to assign indexed symbolic names to most input parameters, even though they are being treated as constant.

1.12

## Blending Problem (Winston, p.86 )

Sunco Oil (SO) manufactures three types of gasoline (gas 1, gas 2, and gas 3). Each type is produced by blending three types of crude oil (crude 1, crude 2, and crude 3). Sunco can purchase up to 5000 barrels of each type of crude oil daily. The three types of gasoline dier in their octane rating and sulfur content. The crude oil blended to form gas 1 must have an average octane rating of at least 10 and contain at most 1% sulfur. The crude oil blended to form gas 2 and gas 3 must have an average octane rating of at least 8 and contain at most 2% sulfur and an average octane rating of at least 6 and contain at most 1% sulfur, respectively. It costs \$4 to transform one barrel of oil into one barrel of gasoline and SO renery can produce up to 14,000 barrels of gasoline daily. SO customers require the following amounts of each gasoline: gas 1 3000 barrels/day; gas 2 2000 barrels/day; gas 3 1000 barrels/day. Demand must be met. SO also has the option of advertising to stimulate demand for its products. Each dollar spent daily in advertising a particular type of gas increases the daily demand for that type of gas by 10 barrels. Sales Price/Barrel \$ 70 \$ 60 \$ 50 Purchase Price/Barrel \$ 45 \$ 35 \$ 25 Octane Rating 12 6 8 Sulfur Content 0.5% 2.0% 3.0%

## Formulate an LP that will enable Sunco to maximize daily prots.

Solution Let: i = {gas 1, gas 2, gas 3} j = {crude oil 1, crude oil 2, crude oil 3} Si = sales price per barrel of gasoline type i ={70, 60, 50} Pj = purchase price per barrel of crude oil type j = {45, 35, 25} Oj = octane rating of crude oil type j = {12, 6, 8} Mi = minimum average octane rating for gasoline type i= {10, 8, 6} Fj = sulfur content of crude oil type j = {0.5, 2, 3} Ni = maximum sulfur content in gasoline type i = {1, 2, 1} Di = demand for gasoline type i = {3000, 2000, 1000} Decision variables: Xij = # barrels of gasoline type i produced using crude oil type j Ai = \$ spent in advertising gasoline type i Objective Function:
3 3 3 3 3 3 3

Max z =
i=1

Si
j=1

xij
i=1

Pj
i=1

xij 4
i=1

xij
j=1

xij
i=1

ai (daily prots)

Constraints:
3

xij 5000, j
i=1 3 3

xij 14000
i=1 j=1 3

## (max 14000 barrels of gasoline can be produced)

xij 10Ai = Di , i
j=1 3 j=1 Oj xij 3 j=1 xij 3 j=1 Fj xij 3 j=1 xij

Mi , i Ni , i

## (max average sulfur content) (max average sulfur content)

xij 0, i,j

Remarks: Blending problem is a situation in which various inputs must be blended in some desired proportion to produce goods. In reality, blending model is run periodically in a company to set production on the basis of the current inventory and demand forecast. Then the inventory and forecast levels would be updated and used to run the model again to determine the next days production.

1.13

## Production Process (Winston, p.86 )

Rylon Corp manufactures Brute and Chanelle perfumes. The raw material needed to manufacture each type of perfume can be purchased for \$3/pound. Processing 1 lb of raw material requires 1 hour of laboratory time. Each pound of processed raw material yields 3 oz of Regular Brute Perfume and 4 oz of Regular Chanelle Perfume. Regular Brute can be sold for \$7/oz and Regular Chanelle for \$6/oz. Rylon also has the 9

option of further processing Regular Brute and Regular Chanelle to produce Luxury Brute, sold at \$18/oz, and Luxury Chanelle, sold at \$14/oz. Each ounce of Regular Brute processed further requires an additional 3 hours of laboratory time and \$4 processing cost and yields 1 oz of Luxury Brute. Each ounce of Regular Chanelle processed further requires an additional 2 hours of laboratory time and \$4 processing cost and yields 1 oz of Luxury Chanelle. Each year, Rylon has 6000 hours of laboratory time available and can purchase up to 4000 lb of raw material. Formulate an LP that can be used to determine how Rylon can maximize prots. Assume that the cost of the laboratory hours is a xed cost. Solution Decision variables: x1 = # oz of Regular Brute sold annually x2 = # oz of Luxury Brute sold annually x3 = # oz of Regular Chanelle sold annually x4 = # oz of Luxury Chanelle sold annually x5 = # lb of raw material purchased annually Objective function: Max z = 7x1 + 6x3 + 18x2 + 14x4 4(x2 + x4 ) 3x5 Constraints: s.t. x1 + x2 3x5 = 0 x3 + x4 4x5 = 0 3x2 + 2x4 + x5 6000 x5 4000 x1 , x2 , x3 , x4 , x5 0 (revenue from sales) (processing cost and raw material cost) (1 lb of raw material produces 3 oz brute) (1 lb of raw material produces 4 oz Chanelle) (max available labor hour) (max available raw material) (nonnegative constraint)

The key step in production process models is to determine how the outputs from a later stage of the process are related to the outputs from an earlier stage.

The next three examples are using linear programming to solve multiperiod decision problems.

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1.14

## Inventory Problem (Winston, p.101 )

Sailco Corp must determine how many sailboats should produce during each of the next four quarters. The demand during each of the next four quarters is as follows: rst quarter, 40 sailboats; second quarter, 60 sailboats; third quarter, 75 sailboats; fourth quarter, 25 sailboats. Sailco must meet demands on time. The beginning of the rst quarter, Sailco has an inventory of 10 sailboats. At the beginning of each quarter, Sailco must decide how many sailboats should be produced during that quarter. For simplicity, we assume that sailboats manufactured during a quarter can be used to meet demand for that quarter. During each quarter, Sailco can produce up to 40 sailboats with regular-time labor at a total cost of \$400 per sailboat. By having employees work overtime during a quarter, Sailco can produce additional sailboats with overtime labor at a total cost of \$450 per sailboat. At the end of each quarter (after production has occurred and the current quarters demand has been satised), a carrying or holding cost of \$20 per sailboat is incurred. Use linear programming to determine a production schedule to minimize the sum of production and inventory costs during the next four quarters. Solution Let: i = quarter = {1, 2, 3, 4} Di = demand in quarter i (sailboats) = {40, 60, 75, 25} I0 = # sailboats on hand at the end of quarter 0 = {10} Decision variables: Xi = # sailboats produced in quarter i using regular-time labor Yi = # sailboats produced in quarter i using overtime labor Ii = # sailboats on hand at the end of quarter i Objective function: 4 Min z = 400 i=1 Xi + 450
4 i=1 4 i=1 Ii

Yi + 20

total cost

## Constraints: s.t. Xi 40, i Ii1 + Xi + Yi Di = Ii Xi , Yi , Ii 0, i

(max sailboats/qrt. can be produced using regular-time labor) (inventory constraint) (nonnegative constraint)

Remarks: several limitation in the Sailco problem model formulation. First, production cost is not always a linear function of the quantity produced in which violates the Proportionality assumption. The fact that period-to-period variations in the quantity produced may result in extra cost (production-smoothing cost) such as maximum production capacity, setup cost, training new employees, laying o workers, and so forth. Secondly, future demand is not certain, thus it violates Certainty assumption. When demand is not met on time, cost of goodwill shall be calculated due to customer displeasure which may result in a loss of future revenue. Backlogged may occur if demand can be met during later periods; however, it may incur some penalty cost which shall be counted. Lastly, It is unrealistic to assign inventory level of the last period equals to zero. It should assign a salvage value that is indicative of the workth of the nal periods inventory.

1.15

## Multi-period Work Scheduling (Winston, p.109 )

CSL is a chain of computer service stores. The number of hours of skilled repair time that CSL requires during the next ve months is as follows:

11

Jan: 6000 hours Feb: 7000 hours Mar: 8000 hours Apr: 9500 hours May: 11,000 hours At the beginning of January, 50 skilled technician work for CSL. Each skilled technician can work up to 160 hours per month. In order to meet future demands, new technicians must be trained. It takes one month to train a new technician. During the month of training, a trainee must be supervised for 50 hours by an experienced technician. Each experienced technician is paid \$2000 a month (even if he or she does not work the full 160 hours). During the month of training, a trainee is paid \$1000 a month. At the end of each month, 5% of CSLs experienced technicians quit to join Plum Computers. Formulate an LP whose solution will enable CSL to minimize the labor cost incurred in meeting the service requirements for the next ve months. Solution Let: i = {Jan, Feb, Mar, Apr, May} Di = # hours required during month i = {6000, 7000, 8000, 9000, 11000} Decision variables: Si = # skilled technicians available in the beginning of month i Ni = # new technicians available in month i Objective function: 5 Min z = i=1 (2000Si + 1000Ni ) Constraints: s.t. 160Si 50Ni Di , i 0.95Si + Ni = Si+1 , i S1 = 50 Si , Ni 0, i

(labor cost) (demand has to be met) (labor balance) (beginning # labor) (nonnegative constraint)

1.16

## Multi-period Financial Model (Winston, p.105 )

Finco Investment Corporation must determine investment strategy for the rm during the next three years. At present (time 0), \$100,000 is available for investment. Investment A, B, C, D, and E are available. The cash ow associated with investing \$1 in each investment is given below. To ensure that the companys portfolio is diversied, Finco requires that at most \$75,000 be placed in any single investment. In addition to investments A-E, Finco can earn interest at 8% per year by keeping uninvested cash in money market funds. Returns from investments may be immediately reinvested. For example, the positive cash ow received from investment C at time 1 may immediately be reinvested in investment B. Finco cannot borrow funds, so the cash available for investment at any time is limited to cash on hand. Cash 0 -1.00 0.00 -1.00 -1.00 0.00 Flow at Time 1 2 0.50 1.00 -1.00 0.50 1.20 0.00 0.00 0.00 0.00 -1.00 (\$) 3 0.00 1.00 0.00 1.90 1.50

A B C D E

12

Formulate an LP that will maximize cash on hand at time 3. Solution Decision variables: A = \$ invested in investment A B = \$ invested in investment B C = \$ invested in investment C D = \$ invested in investment D E = \$ invested in investment E St = \$ invested in money market fund at time t where t = 0, 1, 2 Objective function: Max z = B + 1.9D + 1.5E + 1.08S2 Constraints: s.t. A + C + D + S0 = 100, 000 .5A + 1.2C + 1.08S0 = B + S1 A + .5B + 1.08S1 = E + S2 A 75000 B 75000 C 75000 D 75000 E 75000 A, B, C, D, E, S0 , S1 , S2 0 (cash on hand at time 3) (available cash at present) (available cast at time 1) (available cast at time 2) (max \$ can be invested in investment (max \$ can be invested in investment (max \$ can be invested in investment (max \$ can be invested in investment (max \$ can be invested in investment (nonnegative constraint)

A) B) C) D) E)

1.17

Production Process

An Oil company has three dierent processes that can be used to manufacture various types of gasoline. Each process involves blending oils in the companys catalytic cracker. Running process 1 for an hour costs \$5 and requires 2 barrels of crude oil 1 and 3 barrels of crude oil 2. The output from running process 1 for an hour is 2 barrels of gas 1 and 1 barrel of gas 2. Running process 2 for an hour costs \$4 and requires 1 barrel of crude 1 and 3 barrels of crude 2. The output from running process 2 for an hour is 3 barrels of gas 2. Running process 3 for an hour costs \$1 and requires 2 barrels of crude 2 and 3 barrels of gas 2. The output from running process 3 for an hour is 2 barrels of gas 3. Each week, 200 barrels of crude 1, at \$2 per barrel, and 300 barrels of crude 2, at \$3 per barrel may be purchased. All gas produced can be sold at the following per-barrel prices: gas 1,\$9; gas 2, \$10; gas 3, \$24. Formulate an LP whose solution will maximize revenue less costs. Assume only 100 hours of time on the catalytic cracker are available each week. Solution Decision variables: Pi = # labor hour used in process i, where i = {1, 2, 3} Objective function: Max z = 2(2P1 + P2 ) 3(3P1 + 3P2 + 2P3 ) 5P1 4P2 P3 +9(2P1 ) + 10(P1 + 3P2 3P3 )) + 24(2P3 ) Constraints: s.t. 2P1 + P2 200 3P1 + 3P2 + 2P3 300 P1 + P2 + P3 100 P1 , P2 , P3 0 (purchasing cost) (processing cost) (revenue) (available barrels of crude oil 1) (available barrels of crude oil 2) (available labor hours) (nonnegative constraint)

13

1.18

## Orange Juice Company

O. J. Juice Company sells bags of oranges and cartons of orange juice. O. J. grades oranges on a scale of 1 (poor) to 10 (excellent). At present, O. J. has on hand 100,000 pounds of grade 9 oranges and 120,000 pounds of grade 6 oranges. The average quality sold in a bag must be at least 7, and the average quality of the oranges used to make orange juice must be at least 8. Each pound of oranges that is used to produce juice yields a revenue of \$1.50 and incurs a variable cost (consisting of labor costs, inventory costs, variable overhead costs, etc.) of \$1.05. Each pound of oranges sold in bags yields revenue of \$0.50 and incurs a variable cost of \$0.20. Formulate an LP to help O. J. maximize prot. Solution Decision variables: x9 = # lbs of oranges sold in a bag x6 = # lbs of oranges sold in a bag y9 = # lbs of orange juice sold in a y6 = # lbs of orange juice sold in a Objective function: Max z = Constraints: s.t. x9 + y9 100000 x6 + y6 120000
9x9 +6S6 x9 +x6 9y9 +6y6 y9 +y6

(purchasing cost) (maximum grade 9 oranges can be used) (maximum grade 6oranges can be used) (average quality in a bag at least 7) (average quality in a juice at least 8) (nonnegative constraint)

7 8

x9 , x6 , y9 , y6 0

1.19

## Notip Table Company (Rardin, p. 64 )

The Notip Table Company sells two models of its patented ve-leg tables. The basic version uses a wood top, requires .6 hour to assemble and sells for a prot of \$200. The deluxe model takes 1.5 hours to assemble because of its glass top and sells for a prot of \$350. Over the next week the company has 300 legs, 50 wood tops, 35 glass tops, and 63 hours of assembly available. Notip wishes to determine a maximum prot production plan assuming that everything produced can be sold. Formulate the mathematical programming. will be revisited in the graphical method lecture note. Solution Decision variables: x1 = # of basic models produced x2 = # of deluxe models produced

14

max s.t.

200x1 + 350x2 5x1 + 5x2 .6x1 + 1.5x2 x1 x2 x1 , x2 300 63 50 35 0 (available legs) (available labor hours) (available wood tops) (available glass tops) (nonnegative constraints)

15

## Overview of Linear Programming

When there is an option, linear constraint and objective functions are preferred to nonlinear ones because every nonlinearity of an optimization model usually reduces its tractability. Unfortunately, linear functions implicitly assume that each unit increase/decrease in a decision variable has the same eect as the preceding increase/decrease: equal returns to scale. When there is an option, single-objective optimization models are preferred to multiobjective ones because conicts among objectives usually make multiobjective model less tractable. When there is an option, optimal variable magnitudes are large enough that fractions have no practical importance, modeling with continuous variables is preferred to discrete because it is generally more tractable. Mathematical modeling can be distinguished into several classes:
Linear Programming (LP): if the objective function and all constraint functions are linear in the decision variables. Nonlinear Programming (NLP): if the objective function or any of the constraint functions is nonlinear in the decision variables. Integer Programming (IP): if any one of its decision variable is discrete

Pure Integer Programming: if all variables are discrete Mixed Integer Programming: otherwise
Integer Linear Programming (ILP): if its objective function and all main constraints are linear and the variables are integers (may be pure or mixed ) Integer Nonlinear Programming (INLP): if its objective function or any of its main constraints is nonlinear and the variables are not integers

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