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Problem BM

The company wants to determine the optimal prices for products C and D to maximize profits given resource constraints. The problem is formulated as a non-linear program (NLP) to be solved using Excel Solver. Solver finds the optimal prices of $120 for C and $110 for D, utilizing all available resources. The Lagrange multipliers for the resource constraints are both zero, indicating the constraints are not binding at the optimal solution.

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Andreal20
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20 views1 page

Problem BM

The company wants to determine the optimal prices for products C and D to maximize profits given resource constraints. The problem is formulated as a non-linear program (NLP) to be solved using Excel Solver. Solver finds the optimal prices of $120 for C and $110 for D, utilizing all available resources. The Lagrange multipliers for the resource constraints are both zero, indicating the constraints are not binding at the optimal solution.

Uploaded by

Andreal20
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Non-Linear Programming; Using Excel Solver Add-in:

The following problem requires the use to the Solver add-in within Excel. No other software
application(s) will suffice for the purposes of this learning exercise. Please show all work and label
the answers, so the student can benefit from context.

Problem:
A company makes products C and D from 2 resources, labor and material. The company wants to
determine the selling price which will maximize profits. One unit of C costs $30 to make and
demand is estimated to be 50 - .09 * Price of C. One unit of D costs $20 to make and demand is
estimated to be 30 - .14 * Price of D. The utilization of labor and materials and the available
quantity of resources is shown in the table. A reasonable price for the products is between 90 and
140.

Product C D Available
resources
Labor (hr/unit) 2 4 150
Material (ounces/unit) 2 8 220
Manufacturing cost($/unit) 30 20
Demand (units) 50 - 0.09*P1 30 – 0.14*P2

(Part a) Let X1 = demand for C’s and X2 =demand for D’s. Let P1 = price for C’s and P2 =
price for D’s. Provide an algebraic formulation for the NLP.

(Part b) Implement and solve the problem in Excel. Describe the optimal solution.

(Part c) Comment on the values of the Lagrange multipliers for the Labor and Material
availability constraints. What is worth noting?

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