Chapter 1

Introduction
Optimization is simply a scientific approach to decision
making that seeks to best design and operate a system,
usually under conditions requiring the allocation of scarce
resources.

By a system, we mean an organization of interdependent

components that work together to accomplish the goal of the
system.

For example, Any Company is a system whose goal

consists of maximizing the profit or minimizing the cost that
can be earned(gained ) by producing quality products.
The scientific approach to decision making usually involves
the use of one or more mathematical models.

A mathematical model is a mathematical representation of

an actual situation that may be used to make better decisions
or simply to understand the actual situation better.

Static and Dynamic Models

A static model is one in which the decision variables do not
involve sequences of decisions over multiple periods.
 A dynamic model is a model in which the decision variables
do involve sequences of decisions over multiple periods.

 Basically, in a static model we solve a “one-shot” problem

whose solutions prescribe optimal values of decision variables
at all points in time.

In a dynamic model, a company must determine how to

minimize the cost on time.
Linear and Nonlinear Models
Suppose that whenever decision variables appear in the
objective function and in the constraints of an optimization
model, the decision variables are always multiplied by
constants and added together. Such a model is a linear
model.

If an optimization model is not linear, then it is a nonlinear

model.

 In general, nonlinear models are much harder to solve than

linear models. We will discuss both linear models and
Nonlinear models in this course.
Integer and Non integer Models
If one or more decision variables must be integer, then we
say that an optimization model is an integer model.

If all the decision variables are free to assume fractional

values, then the optimization model is a non integer model.
Integer models are much harder to solve than nonlinear
models.
Deterministic and Stochastic Models
Suppose that for any value of the decision variables, the
value of the objective function and whether or not the
constraints are satisfied is known with certainty.

We then have a deterministic model. If this is not the case,

then we have a stochastic model.
Optimization Models

A Optimization model “prescribes” behaviour for an

organization that will enable it to best meet its goal(s).
The components of a optimization model include

 objective function(s)
 decision variables
 constraints

In short, an optimization model seeks to find values of the

decision variables that optimize (maximize or minimize) an
objective function among the set of all values for the decision
variables that satisfy the given constraints.
The Objective Function
In most models, there will be a function we wish to maximize
or minimize.
This function is called the model’s objective function.
In many situations, an organization may have more than one
objective
The Decision Variables
The variables whose values are under our control and
influence the performance of the system are called decision
variables.
Most of this course will be devoted to discussion of how to
determine the value of decision variables that maximize
(minimize) an objective function.
Constraints
In most situations, only certain values of decision variables are possible.
Restrictions on the values of decision variables are called constraints.
The Seven-Step Model-Building Process
When optimization problem is used to solve an
organization’s problem, the following seven step model-
building procedure should be followed:
Step 1: Formulate the Problem :
The operations manager first defines the organization’s
problem.
 Defining the problem includes specifying the
organization’s objectives and the parts of the organization
that must be studied before the problem can be solved.
Step 2: Observe the System:
Next, the operations manager collects data to estimate the value of
parameters that affect the organization’s problem.
These estimates are used to develop (in step 3) and evaluate (in step
4) a mathematical model of the organization’s problem.
Step 3: Formulate a Mathematical Model of the Problem:
In this step, the operations manager develops a mathematical
model of the problem

Step 4: Verify the Model and Use the Model for

Prediction: The operations researcher now tries to determine
if the mathematical model developed in step 3 is an accurate
representation of reality

Step 5: Select a Suitable Alternative: Given a model and a

set of alternatives, the operations researcher now chooses the
alternative that best meets the organization’s objectives.
Step 6: Present the Results and Conclusion of the Study
to the Organization:
In this step, optimizer presents the model and
recommendation from step 5 to the decision making
individual or group.
In some situations, one might present several alternatives
and let the organization choose the one that best meets its
needs.
After presenting the results, the analyst may find that the
organization does not approve of the recommendation. This
may result from incorrect definition of the organization’s
problems or from failure to involve the decision maker from
the start of the project.
In this case, the optimizer should return to step 1, 2, or 3.
Step 7: Implement and Evaluate Recommendations
If the organization has accepted the study, then the analyst
aids in implementing the recommendations.

The system must be constantly monitored (and updated

dynamically as the environment changes) to ensure that the
recommendations enable the organization to meet its
objectives.

Simulation
Simulation is a very powerful and widely used management
science technique for the analysis and study of complex
systems.
But, because of complexity, stochastic relations, and so on,
not all real-world problems can be represented adequately
mathematical model.

In such case, the only alternative form of modelling and

analysis available to the decision maker is simulation.
Scope of Optimization Problem

The scope aspect of any subject indicates, the limit of

application of the subject matter/techniques of the subject to
the various fields to solve the variety of the problems.

The system may be applied in business, industry, government

or defence organization.

This indicates that the techniques of optimization may be

used to solve any type of problems.

The problems may pertain(concern) to an individual, group

of individuals, business, agriculture, government or defence.
Hence, we can say that there is no limit for the application
of optimization methods and techniques; they may be
applied to any type of problems.

Some of the fields where optimization techniques can be

applied to understand how the techniques are useful to solve
the problems.

In Defence Operations
In fact, the subject optimization is the baby of World War
II.
To solve war problems, they have applied team approach,
and come out with various models such as resource
allocation model, transportation model etc
In any war field two or more parties are involved, each
having different resources (manpower, ammunition, etc.),
different courses of actions (strategies) for application.

Every opponent has to guess the resources with the enemy,

and his courses of action and accordingly he has to attack the
enemy.

For this, he needs scientific and logical analysis of the

problem to get fruitful results.

Here one can apply the techniques like Linear

Programming, Game theory, and inventory models etc. to
win the game.
In Industry
After the II World War, the, Industrial world faced a depression and
to solve the various industrial problems, industrialist tried the
models, which were successful in solving their problems.

Industrialist learn the techniques of optimization and applied to

solve industrial problems.

Then onwards, various models have been developed to solve

industrial problems.

Today the managers have on their hand numerous techniques to

solve different types of industrial problems.
In fact decision trees, inventory model, Linear
Programming model, Transportation model, Sequencing
model, Assignment model and replacement models are
helpful to the managers to solve various problems, they face
in their day to day work.

These models are used to minimize the cost of production,

increase the productivity and use the available resources
carefully and for healthy industrial growth.

An industrial manager, with these various models on his

hand and a computer to workout the solutions quickly and
preciously
In Planning For Economic Growth
In Ethiopia all companies have strategic plan for steady
economic growth.

Every state government has to prepare plans for balanced

growth of the state. For this all departments can use
optimization techniques for planning purpose.

The question like how many engineers, doctors, software

people etc. are required in future and what should be their
quality to face the problems etc. can be easily solved.
In Traffic control
Due to population explosion, the increase in the number
and verities of vehicles, road density is continuously
increasing.

Especially in peak hours, it will be a headache to control

the traffic. Hence proper timing of traffic signalling is
necessary.

Depending on the flow of commuters, proper signalling

time is to be worked out.

This can be easily done by the application of queuing

theory.
In Hospitals
Many time we see very lengthy queues of patient near
hospitals and few of them get treatment and rest of them
have to go without treatment because of time factor.

Some times we have problems non-availability of

essential drugs, shortage of ambulances, shortage of beds
etc.

These problems can be conveniently solved by the

application of optimization techniques.
 Introduction to Linear Programming
Linear programming (LP) is a tool for solving optimization
problems.

LP has been used to solve optimization problems in

industries as diverse as banking, education, forestry,
petroleum, and trucking.

In a survey out of 500 firms, 425 of the firms are used linear
programming.

As a measure of the importance of linear programming in

optimization, approximately 70% of this course will be
devoted to linear programming and related optimization
techniques.
Properties of Linear Programming Model
Any linear programming model (problem) must have the following
properties:
(a) The relationship between variables and constraints must be linear.
(b) The model must have an objective function.
(c) The model must have constraints.
(d) The model must have non-negativity constraint.

What Is a Linear Programming Problem?

 Linear Programming is one of the most versatile, powerful and
useful techniques for making managerial decisions.
Linear programming technique may be used for solving broad range
of problems arising in business, government, industry, hospitals,
libraries, etc.
Whenever we want to allocate the available limited resources for
various competing activities for achieving our desired objective, the
technique that helps us is LINEAR PROGRAMMING.
 Example
1. ABC company manufactures two types of wooden toys: soldiers and
trains. A soldier sells for birr 27 and uses birr10 worth of raw
materials. Each soldier that is manufactured increases ABC’s variable
labor and overhead costs by birr14. A train sells for birr 21 and uses
birr 9 worth of raw materials. Each train built increases ABC’s
variable labor and overhead costs by birr 10. The manufacture of
wooden soldiers and trains requires two types of skilled labor:
carpentry and finishing. A soldier requires 2 hours of finishing labor
and 1 hour of carpentry labor. A train requires 1 hour of finishing and
1 hour of carpentry labor. Each week, ABC can obtain all the needed
raw material but only 100 finishing hours and 80 carpentry hours.
Demand for trains is unlimited, but at most 40 soldiers are bought
each week. ABC wants to maximize weekly profit (revenues ).
• Formulate a mathematical model of ABC’s situation that can be used
to maximize ABC’s weekly profit.
 Solution:
Decision Variables:
We begin by defining the relevant decision variables.

 In any linear programming model, the decision variables should

completely describe the decisions to be made.

Clearly, ABC must decide how many soldiers and trains should be
manufactured each week.

Objective Function:
In any linear programming problem, the decision maker wants to
maximize ( revenue or profit) or minimize ( costs) some function of the
decision variables.

The function to be maximized or minimized is called the objective

function.
Constraints:
As x1 and x2 increase, ABC’s objective function grows larger.

This means that if ABC were free to choose any values for x1 and x2, the company
could make an arbitrarily large profit by choosing x1 and x2 to be very large.

Unfortunately, the values of x1 and x2 are limited by the following three

restrictions (often called constraints):
Constraint 1: Each week, no more than 100 hours of finishing time may be used.
Constraint 2: Each week, no more than 80 hours of carpentry time may be used.
Constraint 3: Because of limited demand, at most 40 soldiers should be produced
each week.
The amount of raw material available is assumed to be unlimited, so no restrictions
have been placed on this.

The next step in formulating a Optimization(mathematical) model of the ABC

problem is to express Constraints 1–3 in terms of the decision variables x1 and x2.
Constraints 1–3 in terms of the decision variables; are called the constraints for the
ABC linear programming problem.

The coefficients of the decision variables in the constraints are called technological
coefficients.

This is because the technological coefficients often reflect the technology used to
produce different products.

For example, the technological coefficient of x2 in (3) is 1, indicating that a soldier

requires 1 carpentry hour.

The number on the right-hand side of each constraint is called the constraint’s right-
hand side (or rhs)

The rhs of a constraint represents the quantity of a resource that is available.

Sign Restrictions :
To complete the formulation of a linear programming problem, the following
question must be answered for each decision variable:
Can the decision variable only assume nonnegative values, or is the decision
variable allowed to assume both positive and negative values?
If a decision variable xi can only assume nonnegative values, then
we add the sign restriction xi ≥ 0.

 If a variable xi can assume both positive and negative (or zero)

values, then we say that xi is unrestricted in sign (often abbreviated
urs).
For the ABC problem, it is clear that x1 ≥ 0 and x2 ≥ 0.

In other problems, some variables may be urs.

For example, if xi represented a firm’s cash balance, then xi could

be considered negative if the firm owed more money than it had on
hand. In this case, it would be appropriate to classify xi as urs.
2.XYZ Auto manufacturing company manufactures luxury cars and
trucks. The company believes that its most likely customers are high-
income women and men. To reach these groups, the company has
embarked on an ambitious TV advertising campaign and has decided to
purchase 1-minute commercial spots on two types of programs: comedy
shows and football games. Each comedy commercial is seen by 7 million
high-income women and 2 million high income men. Each football
commercial is seen by 2 million high-income women and 12 million
high-income men. A 1-minute comedy costs birr 50,000, and a 1-minute
football costs birr100,000. XYZ would like the commercials to be seen
by at least 28 million high-income women and 24 million high-income
men. Formulate linear programming to determine how XYZ Auto can
meet its advertising requirements at minimum cost.
3. A post office requires different numbers of full-time employees on
different days of the week. The number of full-time employees required
on each day is given in the table. Union rules state that each full-time
employee must work five consecutive days and then receive two days
off. For example, an employee who works Monday to Friday must be off
on Saturday and Sunday. The post office wants to meet its daily
requirements using only fulltime employees. Formulate an LP that the
post office can use to minimize the number of full-time employees who
must be hired.
4.Your diet requires that all the food you 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 birr 50, each scoop of chocolate ice cream costs birr 20,
each bottle of cola costs birr 12, and each piece of pineapple
cheesecake costs birr 80. Each day, you 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 in the table
Formulate a linear programming model that can be used to satisfy your
daily nutritional requirements at minimum cost.
5. Star Oil Company is considering five different investment
opportunities. The cash outflows and net present values (in millions of
dollars) are given in the table. Star Oil has $40 million available for
investment now (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 outflows and NPV are
adjusted accordingly. For example, if Star Oil purchases one-fifth of
investment 3, then a cash outflow of (1\ 5) x5 = $1 million would be
required at time 0, and a cash outflow of (1 \5 )x5 = $1 million would
be required at time 1. The one-fifth share of investment 3 would yield an
NPV of (1 \5) x16 = $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.
Exercise
1. Farmer Tolosa must determine how many acres of corn and wheat to
plant this year. An acre of wheat yields 25 bushels of wheat and requires
10 hours of labor per week. An acre of corn yields 10 bushels of corn
and requires 4 hours of labor per week. All wheat can be sold at birr 80 a
bushel, and all corn can be sold at birr 60 a bushel. Seven acres of land
and 40 hours per week of labor are available. Government regulations
require that at least 30 bushels of corn be produced during the current
year. Let x1 = number of acres of corn planted, and x2 = number of
acres of wheat planted. Using these decision variables, formulate an LP
whose solution will tell Farmer Jones how to maximize the total revenue
from wheat and corn.
2. In the post office example, suppose that each full-time employee
works 8 hours per day. Thus, Monday’s requirement of 17 workers
may be viewed as a requirement of 8(17) 136 hours. The post office
may meet its daily labor requirements by using both full-time and part-
time employees. During each week, a full-time employee works 8
hours a day for five consecutive days, and a part-time employee works
4 hours a day for five consecutive days. A full-time employee costs the
post office birr 150 per hour, whereas a part-time employee (with
reduced fringe benefits) costs the post office only birr100 per hour.
Union requirements limit part-time labor to 25% of weekly labor
requirements. Formulate an LP to minimize the post office’s weekly
labor costs.
3.You have decided to enter the candy business. You are considering
producing two types of candies: Slugger Candy and Easy Out Candy,
both of which consist solely of sugar, nuts, and chocolate. At present,
you have in stock 100 oz of sugar, 20 oz of nuts, and 30 oz of
chocolate. The mixture used to make Easy Out Candy must contain at
least 20%nuts. The mixture used to make Slugger Candy must contain
at least 10% nuts and 10% chocolate. Each ounce of Easy Out Candy
can be sold for 7 birr , and each ounce of Slugger Candy for 5 birr.
Formulate an LP that will enable you to maximize your revenue from
candy sales.
4.Rylon Corporation manufactures Brute and Chanelle perfumes.
The raw material needed to manufacture each type of perfume can
be purchased for birr 60 per 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 birr100/oz and
Regular Chanelle for birr 90/oz. Rylon also has the option of further
processing Regular Brute and Regular Chanelle to produce Luxury
Brute, sold at birr 200/oz, and Luxury Chanelle, sold at birr 150/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 birr 75
processing cost and yields 1 oz of Luxury Chanelle. Each year,
Rylon has 6,000 hours of laboratory time available and can purchase
up to 4,000 lb of raw material. Formulate an LP that can be used to
determine how Rylon can maximize profits. Assume that the cost of
the laboratory hours is a fixed cost.
5.Walnut Orchard has two farms that grow wheat and corn.
Because of differing soil conditions, there are differences in
the yields and costs of growing crops on the two farms. The
yields and costs are shown in the table . Each farm has 100
acres available for cultivation; 11,000 bushels of wheat and
7,000 bushels of corn must be grown. Determine a planting
plan that will minimize the cost of meeting these demands.
How could an extension of this model be used to allocate
crop production efficiently throughout a nation?
6 Candy Kane Cosmetics (CKC) produces Leslie Perfume, which
requires chemicals and labor. Two production processes are available:
Process 1 transforms 1 unit of labor and 2 units of chemicals into 3
oz of perfume. Process 2 transforms 2 units of labor and 3 units of
chemicals into 5 oz of perfume. It costs CKC birr 60 to purchase a
unit of labor and birr2 to purchase a unit of chemicals. Each year, up
to 20,000 units of labor and 35,000 units of chemicals can be
purchased. In the absence of advertising, CKC believes it can sell
1,000 oz of perfume. To stimulate demand for Leslie, CKC can hire
the lovely model Jenny Nelson. Jenny is paid birr1000/hour. Each
hour Jenny works for the company is estimated to increase the
demand for Leslie Perfume by 200 oz. Each ounce of Leslie Perfume
sells for birr 60. Use linear programming to determine how CKC can
maximize profits
7.Furnco manufactures tables and chairs. Each table and chair must be made
entirely out of oak or entirely out of pine. A total of 150 board ft of oak and
210 board ft of pine are available. A table requires either 17 board ft of oak
or 30 board ft of pine, and a chair requires either 5 board ft of oak or 13
board ft of pine. Each table can be sold for birr400, and each chair for
birr150. Formulate an LP that can be used to maximize revenue.
8. (Production planning problem): Solve a variant of the standard production
planning problem. Three products P1, P2, and P3 are manufactured on two
machines M1 and M2. Each of the products must be processed on both
machines in arbitrary order. The unit profits of the products are birr18, birr12,
and birr6, respectively, and the machine capacities are 24 and 16 hours per
planning period. The table indicates how many units of the products can be
made each hour. In addition, it is required that at least ten units of the second
product are made. Formulate a profit-maximizing linear programming problem.
9. Allocation problem ): A student is planning the coming semester. In particular, he is
attempting to allocate the weekly number of hours of study to the individual courses he is
taking. Each hour of study will increase his mark by a certain quantity (starting at zero). The
table shows the marginal improvements of the marks given each hour of study (per week) as
well as the marks required for passing the course. For example, if our student were to allocate
15 hours (per week) to marketing, then his final mark is expected to be 15x5 = 75, which
means passing the course. The student’s objective is to minimize the total number of hours
studied. In addition, the following constraints have been identified:
• A passing grade should be achieved in each course.
• Obtain an average grade of at least 64.
• Suppose that the student has the option to flip hamburgers at McDonalds in his spare time.
This job pays birr 10 per hour. Assuming that the student has a total of 80 hours available for
study and flipping, formulate that our student makes at least birr 100 per week.
• The number of hours allocated to operations research should be at least 20 percent of the
number of hours allocated to the other four subjects combined.