Chapter 4

Linear Programming Applications

 Blending Problem
 Portfolio Planning Problem
 Product Mix Problem
 Transportation Problem
 Data Envelopment Analysis
 Revenue Management

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 Blending Problem

Ferdinand Feed Company receives four raw

grains from which it blends its dry pet food. The pet
food advertises that each 8-ounce packet
meets the minimum daily requirements
for vitamin C, protein and iron. The
cost of each raw grain as well as the
vitamin C, protein, and iron units per
pound of each grain are summarized on
the next slide.

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 Blending Problem

Vitamin C Protein Iron

Grain Units/lb Units/lb Units/lb Cost/lb
1 9 12 0 .75
2 16 10 14 .90
3 8 10 15 .80
4 10 8 7 .70

Ferdinand is interested in producing the 8-

ounce
mixture at minimum cost while meeting the minimum
daily requirements of 6 units of vitamin C, 5 units of
protein, and 5 units of iron.
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 Blending Problem

 Define the decision variables

xj = the pounds of grain j (j = 1,2,3,4)
used in the 8-ounce mixture

 Define the objective function

Minimize the total cost for an 8-ounce mixture:
MIN .75x1 + .90x2 + .80x3 + .70x4

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 Blending Problem

 Define the constraints

Total weight of the mix is 8-ounces (.5 pounds):
(1) x1 + x2 + x3 + x4 = .5
Total amount of Vitamin C in the mix is at least 6
units:
(2) 9x1 + 16x2 + 8x3 + 10x4 ≥ 6
Total amount of protein in the mix is at least 5 units:
(3) 12x1 + 10x2 + 10x3 + 8x4 ≥ 5
Total amount of iron in the mix is at least 5 units:
(4) 14x2 + 15x3 + 7x4 ≥ 5
Nonnegativity of variables: xj > 0 for all j

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 Blending Problem

 The Management Scientist Output

OBJECTIVE FUNCTION VALUE = 0.406

VARIABLE VALUE REDUCED COSTS
X1 0.099 0.000
X2 0.213 0.000
X3 0.088 0.000
X4 0.099 0.000

Thus, the optimal blend is about .10 lb. of grain 1, .21 lb.
of grain 2, .09 lb. of grain 3, and .10 lb. of grain 4. The
mixture costs Frederick’s 40.6 cents.

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 Portfolio Planning Problem

Winslow Savings has $20 million available

for investment. It wishes to invest
over the next four months in such
a way that it will maximize the
total interest earned over the four
month period as well as have at least
$10 million available at the start of the fifth month for
a high rise building venture in which it will be
participating.

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 Portfolio Planning Problem

For the time being, Winslow wishes to invest

only in 2-month government bonds (earning 2% over
the 2-month period) and 3-month construction loans
(earning 6% over the 3-month period). Each of these
is available each month for investment. Funds not
invested in these two investments are liquid and earn
3/4 of 1% per month when invested locally.

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 Portfolio Planning Problem

Formulate a linear program that will help

Winslow Savings determine how to invest over the
next four months if at no time does it wish to have
more than $8 million in either government bonds or
construction loans.

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 Portfolio Planning Problem

 Define the decision variables

gj = amount of new investment in
government bonds in month j
cj = amount of new investment in
construction loans in month j
lj = amount invested locally in month j,
where j = 1,2,3,4

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 Portfolio Planning Problem

 Define the objective function

Maximize total interest earned over the 4-month period.
MAX (interest rate on investment)(amount invested)
MAX .02g1 + .02g2 + .02g3 + .02g4
+ .06c1 + .06c2 + .06c3 + .06c4
+ .0075l1 + .0075l2 + .0075l3 + .0075l4

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 Portfolio Planning Problem

 Define the constraints

Month 1's total investment limited to $20 million:
(1) g1 + c1 + l1 = 20,000,000

Month 2's total investment limited to principle and

interest invested locally in Month 1:
(2) g2 + c2 + l2 = 1.0075l1
or g2 + c2 - 1.0075l1 + l2 = 0

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 Portfolio Planning Problem

 Define the constraints (continued)

Month 3's total investment amount limited to
principle and interest invested in government bonds
in Month 1 and locally invested in Month 2:
(3) g3 + c3 + l3 = 1.02g1 + 1.0075l2
or - 1.02g1 + g3 + c3 - 1.0075l2 + l3 = 0

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 Portfolio Planning Problem

 Define the constraints (continued)

Month 4's total investment limited to principle and
interest invested in construction loans in Month 1,
goverment bonds in Month 2, and locally invested in
Month 3:
(4) g4 + c4 + l4 = 1.06c1 + 1.02g2 + 1.0075l3
or - 1.02g2 + g4 - 1.06c1 + c4 - 1.0075l3 + l4 = 0

$10 million must be available at start of Month 5:

(5) 1.06c2 + 1.02g3 + 1.0075l4 > 10,000,000

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 Portfolio Planning Problem

 Define the constraints (continued)

No more than $8 million in government bonds at any
time:
(6) g1 < 8,000,000
(7) g1 + g2 < 8,000,000
(8) g2 + g3 < 8,000,000
(9) g3 + g4 < 8,000,000

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 Portfolio Planning Problem

 Define the constraints (continued)

No more than $8 million in construction loans at any
time:
(10) c1 < 8,000,000
(11) c1 + c2 < 8,000,000
(12) c1 + c2 + c3 < 8,000,000
(13) c2 + c3 + c4 < 8,000,000

Nonnegativity: gj, cj, lj > 0 for j = 1,2,3,4

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 Product Mix Problem

Floataway Tours has $420,000 that can be

used
to purchase new rental boats for hire during the
summer. The boats can
be purchased from two
different manufacturers.
Floataway Tours would
like to purchase at least 50 boats and would like to
purchase the same number from Sleekboat as from
Racer to maintain goodwill. At the same time,
Floataway Tours wishes to have a total seating
capacity of at least 200.

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 Product Mix Problem

Formulate this problem as a linear program.

Maximum Expected
Boat Builder Cost Seating Daily Profit
Speedhawk Sleekboat $6000 3 $ 70
Silverbird Sleekboat $7000 5 $ 80
Catman Racer $5000 2 $ 50
Classy Racer $9000 6 $110

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 Product Mix Problem

 Define the decision variables

x1 = number of Speedhawks ordered
x2 = number of Silverbirds ordered
x3 = number of Catmans ordered
x4 = number of Classys ordered
 Define the objective function
Maximize total expected daily profit:
Max: (Expected daily profit per unit)
x (Number of units)
Max: 70x1 + 80x2 + 50x3 + 110x4

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 Product Mix Problem

 Define the constraints

(1) Spend no more than $420,000:
6000x1 + 7000x2 + 5000x3 + 9000x4 < 420,000
(2) Purchase at least 50 boats:
x1 + x2 + x3 + x4 > 50
(3) Number of boats from Sleekboat equals number
of boats from Racer:
x1 + x2 = x3 + x4 or x1 + x2 - x3 - x4 = 0

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 Product Mix Problem

 Define the constraints (continued)

(4) Capacity at least 200:
3x1 + 5x2 + 2x3 + 6x4 > 200

Nonnegativity of variables:
xj > 0, for j = 1,2,3,4

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 Product Mix Problem

 Complete Formulation

Max 70x1 + 80x2 + 50x3 + 110x4

s.t.
6000x1 + 7000x2 + 5000x3 + 9000x4 < 420,000
x1 + x2 + x3 + x4 > 50
x1 + x2 - x3 - x4 = 0
3x1 + 5x2 + 2x3 + 6x4 > 200

x1, x2, x3, x4 > 0

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 Product Mix Problem

 Partial Spreadsheet Showing Problem Data

A B C D E F
1 LHS Coefficients
2 Constr. X1 X2 X3 X4 RHS
3 #1 6 7 5 9 420
4 #2 1 1 1 1 50
5 #3 1 1 -1 -1 0
6 #4 3 5 2 6 200
7 Object. 70 80 50 110

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 Product Mix Problem

 Partial Spreadsheet Showing Solution

A B C D E F
9 Decision Variable Values
10 X1 X2 X3 X4
11 No. of Boats 28 0 0 28
12
13 Maximum Total Profit 5040
14
15 Constraints LHS RHS
16 Spending Max. 420.0 <= 420
17 Min. # Boats 56.0 >= 50
18 Equal Sourcing 0.0 = 0
19 Min. Seating 252.0 >= 200

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 Product Mix Problem

 The Management Science Output

OBJECTIVE FUNCTION VALUE = 5040.000

Variable Value Reduced Cost
x1 28.000 0.000
x2 0.000 2.000
x3 0.000 12.000
x4 28.000 0.000
Constraint Slack/Surplus Dual Price
1 0.000 0.012
2 6.000 0.000
3 0.000 -2.000
4 52.000 0.000

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 Product Mix Problem

 Solution Summary
• Purchase 28 Speedhawks from Sleekboat.
• Purchase 28 Classy’s from Racer.
• Total expected daily profit is $5,040.00.
• The minimum number of boats was exceeded by 6
(surplus for constraint #2).
• The minimum seating capacity was exceeded by 52
(surplus for constraint #4).

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 Product Mix Problem

 Sensitivity Report

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$D$12 X1 28 0 70 45 1.875
$E$12 X2 0 -2 80 2 1E+30
$F$12 X3 0 -12 50 12 1E+30
$G$12 X4 28 0 110 1E+30 16.36363636

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 Product Mix Problem

 Sensitivity Report

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$17 #1 420.0 12.0 420 1E+30 45
$E$18 #2 56.0 0.0 50 6 1E+30
$E$19 #3 0.0 -2.0 0 70 30
$E$20 #4 252.0 0.0 200 52 1E+30

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 Transportation Problem

The Navy has 9,000 pounds of material in

Albany,
Georgia that it wishes to ship to three installations:
San Diego, Norfolk, and Pensacola. They
require 4,000, 2,500, and 2,500 pounds,
respectively. Government regulations
require equal distribution of shipping
among the three carriers.

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 Transportation Problem

The shipping costs per pound for truck, railroad,

and airplane transit are shown on the next slide.
Formulate and solve a linear program to
determine the shipping arrangements
(mode, destination, and quantity) that
will minimize the total shipping cost.

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 Transportation Problem

Destination
Mode San Diego Norfolk Pensacola
Truck $12 $6 $5
Railroad 20 11 9
Airplane 30 26 28

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 Transportation Problem

 Define the Decision Variables

‫شحنها‬
We want to determine the pounds of material, xij , ‫ إلى‬i
to be shipped by mode i to destination j. The
following table summarizes the decision variables:
San Diego Norfolk
Pensacola
Truck x11 x12 x13
Railroad x21 x22 x23
Airplane x31 x32 x33

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 Transportation Problem

 Define the Objective Function

Minimize the total shipping cost.
Min: (shipping cost per pound for each mode per
destination pairing) x (number of pounds shipped
by mode per destination pairing).
Min: 12x11 + 6x12 + 5x13 + 20x21 + 11x22 + 9x23
+ 30x31 + 26x32 + 28x33

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 Transportation Problem

 Define the Constraints

Equal use of transportation modes:
(1) x11 + x12 + x13 = 3000
(2) x21 + x22 + x23 = 3000
(3) x31 + x32 + x33 = 3000
Destination material requirements:
(4) x11 + x21 + x31 = 4000
(5) x12 + x22 + x32 = 2500
(6) x13 + x23 + x33 = 2500
Nonnegativity of variables:
xij > 0, i = 1,2,3 and j = 1,2,3

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 Transportation Problem

 Partial Spreadsheet Showing Problem Data

A B C D E F G H I J K
1 LHS Coefficients
2 Con. X11 X12 X13 X21 X22 X23 X31 X32 X33 RHS
3 #1 1 1 1 3000
4 #2 1 1 1 3000
5 #3 1 1 1 3000
6 #4 1 1 1 4000
7 #5 1 1 1 2500
8 #6 1 1 1 2500
9 Obj. 12 6 5 20 11 9 30 26 28

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 Transportation Problem

 Partial Spreadsheet Showing Solution

A B C D E F G H I J K
12 X11 X12 X13 X21 X22 X23 X31 X32 X33
13 1000 2000 0 0 500 2500 3000 0 0
14 Minimized Total Shipping Cost 142000
15
16 Constraints LHS RHS
17 Truc 3000 = 3000
18 Rail 3000 = 3000
19 Air 3000 = 3000
20 San 4000 = 4000
21 Nor 2500 = 2500
22 Pen 2500 = 2500

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 Transportation Problem

 The Management Scientist Output

OBJECTIVE FUNCTION VALUE = 142000.000

Variable Value Reduced Cost
x11 1000.000 0.000
x12 2000.000 0.000
x13 0.000 1.000
x21 0.000 3.000
x22 500.000 0.000
x23 2500.000 0.000
x31 3000.000 0.000
x32 0.000 2.000
x33 0.000 6.000

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 Transportation Problem

 Solution Summary
• San Diego will receive 1000 lbs. by truck
and 3000 lbs. by airplane.
• Norfolk will receive 2000 lbs. by truck
and 500 lbs. by railroad.
• Pensacola will receive 2500 lbs. by railroad.
• The total shipping cost will be $142,000.

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 Data Envelopment Analysis

 Data envelopment analysis (DEA) is an LP application

used to determine the relative operating efficiency of
units with the same goals and objectives.
 DEA creates a fictitious composite unit made up of an
optimal weighted average (W1, W2,…) of existing units.
 An individual unit, k, can be compared by determining
E, the fraction of unit k’s input resources required by
the optimal composite unit.
 If E < 1, unit k is less efficient than the composite unit
and be deemed relatively inefficient.
 If E = 1, there is no evidence that unit k is inefficient, but
one cannot conclude that k is absolutely efficient.

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 Data Envelopment Analysis

 The DEA Model

MIN E
s.t. Weighted outputs > Unit k’s output
(for each measured output)
Weighted inputs < E [Unit k’s input]
(for each measured input)
Sum of weights = 1
E, weights > 0

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 Data Envelopment Analysis

The Langley County School District is trying

to
determine the relative efficiency of
its three high schools. In particular,
it wants to evaluate Roosevelt High.
The district is evaluating
performances on SAT scores, the
number of seniors finishing high
school, and the number of students
who enter college as a function of the
number of teachers teaching senior
classes, the prorated budget for senior instruction,
and the number of students in the senior class.

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 Data Envelopment Analysis

 Input

Roosevelt Lincoln
Washington
Senior Faculty 37 25 23
Budget ($100,000's) 6.4 5.0 4.7
Senior Enrollments 850 700 600

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 Data Envelopment Analysis

 Output

Roosevelt Lincoln
Washington
Average SAT Score 800 830 900
High School Graduates 450 500 400
College Admissions 140 250 370

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 Data Envelopment Analysis

 Decision Variables
E = Fraction of Roosevelt's input resources required by
the composite high school
w1 = Weight applied to Roosevelt's input/output
resources by the composite high school
w2 = Weight applied to Lincoln’s input/output
resources by the composite high school
w3 = Weight applied to Washington's input/output
resources by the composite high school

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 Data Envelopment Analysis

 Objective Function
Minimize the fraction of Roosevelt High School's input
resources required by the composite high school:
MIN E

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 Data Envelopment Analysis

 Constraints
Sum of the Weights is 1:
(1) w1 + w2 + w3 = 1

Output Constraints:
Since w1 = 1 is possible, each output of the composite
school must be at least as great as that of Roosevelt:
(2) 800w1 + 830w2 + 900w3 > 800 (SAT Scores)
(3) 450w1 + 500w2 + 400w3 > 450 (Graduates)
(4) 140w1 + 250w2 + 370w3 > 140 (College Admissions)

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 Data Envelopment Analysis

 Constraints
Input Constraints:
The input resources available to the composite school is
a fractional multiple, E, of the resources available to
Roosevelt. Since the composite high school cannot use
more input than that available to it, the input
constraints are:
(5) 37w1 + 25w2 + 23w3 < 37E (Faculty)
(6) 6.4w1 + 5.0w2 + 4.7w3 < 6.4E (Budget)
(7) 850w1 + 700w2 + 600w3 < 850E (Seniors)
Nonnegativity of variables:
E, w1, w2, w3 > 0

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 Data Envelopment Analysis

 The Management Scientist Output

OBJECTIVE FUNCTION VALUE = 0.765

VARIABLE VALUE REDUCED COSTS
E 0.765 0.000
W1 0.000 0.235
W2 0.500 0.000
W3 0.500 0.000

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 Data Envelopment Analysis

 The Management Scientist Output

CONSTRAINT SLACK/SURPLUS DUAL PRICES

1 0.000 -0.235
2 65.000 0.000
3 0.000 -0.001
4 170.000 0.000
5 4.294 0.000
6 0.044 0.000
7 0.000 0.001

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 Data Envelopment Analysis

 Conclusion
The output shows that the composite school is
made up of equal weights of Lincoln and Washington.
Roosevelt is 76.5% efficient compared to this composite
school when measured by college admissions (because
of the 0 slack on this constraint (#4)). It is less than
76.5% efficient when using measures of SAT scores and
high school graduates (there is positive slack in
constraints 2 and 3.)

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 Revenue Management

 Another LP application is revenue management.

 Revenue management involves managing the short-
term demand for a fixed perishable inventory in
order to maximize revenue potential.
 The methodology was first used to determine how
many airline seats to sell at an early-reservation
discount fare and many to sell at a full fare.
 Application areas now include hotels, apartment
rentals, car rentals, cruise lines, and golf courses.

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 End of Chapter 4

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