4

Linear Programming Applications in

Marketing, Finance and Operations Management

MULTIPLE CHOICE

1. Media selection problems usually determine

a. how many times to use each media source.
b. the coverage provided by each media source.
c. the cost of each advertising exposure.
d. the relative value of each medium.
ANSWER: a
TOPIC: Media selection

2. To study consumer characteristics, attitudes, and preferences, a company would engage in

a. client satisfaction processing.
b. marketing research.
c. capital budgeting.
d. production planning.
ANSWER: b
TOPIC: Marketing research

3. A marketing research application uses the variable HD to represent the number of homeowners
interviewed during the day. The objective function minimizes the cost of interviewing this and other
categories and there is a constraint that HD > 100. The solution indicates that interviewing another
homeowner during the day will increase costs by 10.00. What do you know?
a. the objective function coefficient of HD is 10.
b. the dual price for the HD constraint is 10.
c. the objective function coefficient of HD is -10.
d. the dual price for the HD constraint is -10.
ANSWER: d
TOPIC: Marketing research

4. The dual price for a constraint that compares funds used with funds available is .058. This means that
a. the cost of additional funds is 5.8%.
b. if more funds can be obtained at a rate of 5.5%, some should be.
c. no more funds are needed.
d. the objective was to minimize.
ANSWER: b
TOPIC: Portfolio selection

1
2 Chapter 4 Linear Programming Applications

5. Let M be the number of units to make and B be the number of units to buy. If it costs $2 to make a unit
and $3 to buy a unit and 4000 units are needed, the objective function is
a. Max 2M + 3B
b. Min 4000 (M + B)
c. Max 8000M + 12000B
d. Min 2M + 3B
ANSWER: d
TOPIC: Make or buy

6. If Pij = the production of product i in period j, then to indicate that the limit on production of the
company’s three products in period 2 is 400,
a. P21 + P22 + P23 < 400
b. P12 + P22 + P32 < 400
c. P32 < 400
d. P23 < 400
ANSWER: b
TOPIC: Production scheduling

7. Let Pij = the production of product i in period j. To specify that production of product 1 in period 3 and
in period 4 differs by no more than 100 units,
a. P13 - P14 < 100; P14 - P13 < 100
b. P13 - P14 < 100; P13 - P14 > 100
c. P13 - P14 < 100; P14 - P13 > 100
d. P13 - P14 > 100; P14 - P13 > 100
ANSWER: a
TOPIC: Production scheduling

8. Let A, B, and C be the amounts invested in companies A, B, and C. If no more than 50% of the total
investment can be in company B, then
a. B<5
b. A - .5B + C < 0
c. .5A - B - .5C < 0
d. -.5A + .5B - .5C < 0
ANSWER: d
TOPIC: Portfolio selection

9. Department 3 has 2500 hours. Transfers are allowed to departments 2 and 4, and from departments 1 and
2. If Ai measures the labor hours allocated to department i and T ij the hours transferred from department i
to department j, then
a. T13 + T23 - T32 - T34 - A3 = 2500
b. T31 + T32 - T23 - T43 + A3 = 2500
c. A3 + T13 + T23 - T32 - T34 = 2500
d. A3 - T13 - T23 + T32 + T34 = 2500
ANSWER: d
TOPIC: Work force assignment

10. The objective function for portfolio selection problems usually is maximization of expected return or
a. maximization of investment types
b. minimization of cost
c. minimization of risk
d. maximization of number of shares
ANSWER: c
TOPIC: Portfolio selection

11. For a portfolio selection problem with the objective of maximizing expected return, the dual price for the
available funds constraint provides information about the
Chapter 4 Linear Programming Applications 3

a. proportion of the portfolio that is invested in a particular investment type

b. return from additional investment funds
c. degree of portfolio diversification that is optimal
d. cost of an additional unit of a particular investment type
ANSWER: b
TOPIC: Portfolio selection

TRUE/FALSE

1. Media selection problems can maximize exposure quality and use number of customers reached as a
constraint, or maximize the number of customers reached and use exposure quality as a constraint.
ANSWER: True
TOPIC: Media selection

2. For the marketing research problem presented in the textbook, the research firm’s objective is to conduct
the market survey so as to meet the client’s needs at a minimum cost.
ANSWER: True
TOPIC: Market research

3. Portfolio selection problems should acknowledge both risk and return.

ANSWER: True
TOPIC: Portfolio selection

4. If an LP problem is not correctly formulated, the computer software will indicate it is infeasible when
trying to solve it.
ANSWER: False
TOPIC: Computer solutions

5. It is improper to combine manufacturing costs and overtime costs in the same objective function.
ANSWER: False
TOPIC: Make-or-buy

6. Production constraints frequently take the form:

beginning inventory + sales - production = ending inventory
ANSWER: False
TOPIC: Production scheduling

7. If a real-world problem is correctly formulated, it is not possible to have alternative optimal solutions.
ANSWER: False
TOPIC: Problem formulation

8. To properly interpret dual prices, one must know how costs were allocated in the objective function.
ANSWER: True
TOPIC: Make-or-buy

9. An LP model for a large-scale production scheduling problem involving numerous products, machines,
and time periods can require thousands of decision variables and constraints.
ANSWER: True
TOPIC: Production scheduling

10. A constraint with non-zero slack will have a positive dual price, and a constraint with non-zero surplus
will have a negative dual price.
4 Chapter 4 Linear Programming Applications

ANSWER: False
TOPIC: Computer solutions

SHORT ANSWER

1. Discuss the need for the use of judgment or other subjective methods in mathematical modeling.
TOPIC: Media selection

2. What benefits exist in using linear programming for production scheduling problems?
TOPIC: Production scheduling

3. Describe some common feature of multiperiod financial planning models.

TOPIC: Financial planning

4. Why should decision makers who are primarily concerned with marketing or finance or production know
about linear programming?
TOPIC: Introduction

5. Give examples of how variations in the workforce assignment model presented in the textbook could be
applied to other types of allocation problems.
TOPIC: Workforce assignment

PROBLEMS

1. A&C Distributors is a company that represents many outdoor products companies and schedules
deliveries to discount stores, garden centers, and hardware stores. Currently, scheduling needs to be done
for two lawn sprinklers, the Water Wave and Spring Shower models. Requirements for shipment to a
warehouse for a national chain of garden centers are shown below.

Shipping Minimum Unit Cost Per Unit

Month Capacity Product Requirement to Ship Inventory Cost
March 8000 Water Wave 3000 .30 .06
Spring Shower 1800 .25 .05
April 7000 Water Wave 4000 .40 .09
Spring Shower 4000 .30 .06
May 6000 Water Wave 5000 .50 .12
Spring Shower 2000 .35 .07

Let Sij be the number of units of sprinkler i shipped in month j, where i = 1 or 2, and j = 1, 2, or 3. Let W ij
be the number of sprinklers that are at the warehouse at the end of a month, in excess of the minimum
requirement.
a Write the portion of the objective function that minimizes shipping costs.
b. An inventory cost is assessed against this ending inventory. Give the portion of the objective
function that represents inventory cost.
c. There will be three constraints that guarantee, for each month, that the total number of sprinklers
shipped will not exceed the shipping capacity. Write these three constraints.
Chapter 4 Linear Programming Applications 5

d. There are six constraints that work with inventory and the number of units shipped, making sure
that enough sprinklers are shipped to meet the minimum requirements. Write these six
constraints.

TOPIC: Production scheduling

2. An ad campaign for a new snack chip will be conducted in a limited geographical area and can use TV
time, radio time, and newspaper ads. Information about each medium is shown below.

Medium Cost Per Ad # Reached Exposure Quality

TV 500 10000 30
Radio 200 3000 40
Newspaper 400 5000 25

If the number of TV ads cannot exceed the number of radio ads by more than 4, and if the advertising
budget is $10000, develop the model that will maximize the number reached and achieve an exposure
quality if at least 1000.

TOPIC: Media selection

3. Information on a prospective investment for Wells Financial Services is given below.

Period
1 2 3 4
Loan Funds Available 3000 7000 4000 5000
Investment Income
(% of previous period’s investment) 110% 112% 113%
Maximum Investment 4500 8000 6000 7500
Payroll Payment 100 120 150 100

In each period, funds available for investment come from two sources: loan funds and income from the
previous period's investment. Expenses, or cash outflows, in each period must include repayment of the
previous period's loan plus 8.5% interest, and the current payroll payment. In addition, to end the
planning horizon, investment income from period 4 (at 110% of the investment) must be sufficient to
cover the loan plus interest from period 4. The difference in these two quantities represents net income,
and is to be maximized. How much should be borrowed and how much should be invested each period?

TOPIC: Financial planning

4. Tots Toys makes a plastic tricycle that is composed of three major components: a handlebar-front wheel-
pedal assembly, a seat and frame unit, and rear wheels. The company has orders for 12,000 of these
tricycles. Current schedules yield the following information.

Cost to Cost to
Requirements
Component Plastic Time Space Manufacture Purchase
Front 3 10 2 8 12
Seat/Frame 4 6 2 6 9
Rear wheel (each) .5 2 .1 1 3
Available 50000 160000 30000

The company obviously does not have the resources available to manufacture everything needed for the
completion of 12000 tricycles so has gathered purchase information for each component. Develop a
linear programming model to tell the company how many of each component should be manufactured
6 Chapter 4 Linear Programming Applications

and how many should be purchased in order to provide 12000 fully completed tricycles at the minimum
cost.

TOPIC: Make or buy

5. The Tots Toys Company is trying to schedule production of two very popular toys for the next three
months: a rocking horse and a scooter. Information about both toys is given below.

Begin. Invty. Required Required Production Production

Toy June 1 Plastic Time Cost Cost
Rocking Horse 25 5 2 12 1
Scooter 55 4 3 14 1.2

Plastic Time Monthly Demand Monthly Demand

Summer Schedule Available Available Horse Scooter
June 3500 2100 220 450
July 5000 3000 350 700
August 4800 2500 600 520

Develop a model that would tell the company how many of each toy to produce during each month. You
are to minimize total cost. Inventory cost will be levied on any items in inventory on June 30, July 31, or
August 31 after demand for the month has been satisfied. Your model should make use of the
relationship
Beginning Inventory + Production - Demand = Ending Inventory
for each month. The company wants to end the summer with 150 rocking horses and 60 scooters as
beginning inventory for Sept. 1. Don't forget to define your decision variables.

TOPIC: Production scheduling

6. Larkin Industries manufactures several lines of decorative and functional metal items. The most recent
order has been for 1200 door lock units for an apartment complex developer. The sales and production
departments must work together to determine delivery schedules. Each lock unit consists of three
components: the knob and face plate, the actual lock itself, and a set of two keys. Although the
processes used in the manufacture of the three components vary, there are three areas where the
production manager is concerned about the availability of resources. These three areas, their usage by
the three components, and their availability are detailed in the table.

Resource Knob and Plate Lock Key (each) Available

Brass Alloy 12 5 1 15000 units
Machining 18 20 10 36000 minutes
Finishing 15 5 1 12000 minutes

A quick look at the amounts available confirms that Larkin does not have the resources to fill this
contract. A subcontractor, who can make an unlimited number of each of the three components, quotes
the prices below.

Component Subcontractor Cost Larkin Cost

Knob and Plate 10.00 6.00
Lock 9.00 4.00
Keys (set of 2) 1.00 .50

Develop a linear programming model that would tell Larkin how to fill the order for 1200 lock sets at the
minimum cost.
Chapter 4 Linear Programming Applications 7

TOPIC: Make-or-buy

7. G and P Manufacturing would like to minimize the labor cost of producing dishwasher motors for a
major appliance manufacturer. Although two models of motors exist, the finished models are
indistinguishable from one another; their cost difference is due to a different production sequence. The
time in hours required for each model in each production area is tabled here, along with the labor cost.

Model 1 Model 2
Area A 15 3
Area B 4 10
Area C 4 8
Cost 80 65

Currently labor assignments provide for 10,000 hours in each of Areas A and B and 18000 hours in Area
C. If 2000 hours are available to be transferred from area B to Area A, 3000 hours are available to be
transferred from area C to either Areas A or B, develop the linear programming model whose solution
would tell G&P how many of each model to produce and how to allocate the workforce.

TOPIC: Workforce scheduling

8. FarmFresh Foods manufactures a snack mix called TrailTime by blending three ingredients: a dried fruit
mixture, a nut mixture, and a cereal mixture. Information about the three ingredients (per ounce) is
shown below.

Volum
Ingredient Cost Fat Grams Calories
e
Dried Fruit .35 1/4 cup 0 150
Nut Mix .50 3/8 cup 10 400
Cereal Mix .20 1 cup 1 50

The company needs to develop a linear programming model whose solution would tell them how many
ounces of each mix to put into the TrailTime blend. TrailTime is packaged in boxes that will hold
between three and four cups. The blend should contain no more than 1000 calories and no more than 25
grams of fat. Dried fruit must be at least 20% of the volume of the mixture, and nuts must be no more
than 15% of the weight of the mixture. Develop a model that meets these restrictions and minimizes the
cost of the blend.

TOPIC: Blending

9. The Meredith Ribbon Company produces paper and fabric decorative ribbon which it sells to paper
products companies and craft stores. The demand for ribbon is seasonal. Information about projected
demand and production for a particular type of ribbon is given.

Demand (yards) Production Cost Per Yard Production Capacity (yards)

Quarter 1 10,000 .03 30,000
Quarter 2 18,000 .04 20,000
Quarter 3 16,000 .06 20,000
Quarter 4 30,000 .08 15,000

An inventory holding cost of $.005 is levied on every yard of ribbon carried over from one quarter to the
next.
8 Chapter 4 Linear Programming Applications

a. Define the decision variables needed to model this problem.

b. The objective is to minimize total cost, the sum of production and inventory holding cost. Give
the objection function.
c. Write the production capacity constraints.
d. Write the constraints that balance inventory, production, and demand for each quarter. Assume
there is no beginning inventory in quarter 1.
e. To attempt to balance the production and avoid large changes in the workforce, production in
period 1 must be within 5000 yards of production in period 2. Write this constraint.

TOPIC: Production scheduling

10. Island Water Sports is a business that provides rental equipment and instruction for a variety of water
sports in a resort town. On one particular morning, a decision must be made of how many Wildlife Raft
Trips and how many Group Sailing Lessons should be scheduled. Each Wildlife Raft Trip requires one
captain and one crew person, and can accommodate six passengers. The revenue per raft trip is $120.
Ten rafts are available, and at least 30 people are on the list for reservations this morning. Each Group
Sailing Lesson requires one captain and two crew people for instruction. Two boats are needed for each
group. Four students form each group. There are 12 sailboats available, and at least 20 people are on the
list for sailing instruction this morning. The revenue per group sailing lesson is $160. The company has
12 captains and 18 crew available this morning. The company would like to maximize the number of
customers served while generating at least $1800 in revenue and honoring all reservations.

TOPIC: Scheduling

11. Evans Enterprises has bought a prime parcel of beachfront property and plans to build a luxury hotel.
After meeting with the architectural team, the Evans family has drawn up some information to make
preliminary plans for construction. Excluding the suites, which are not part of this decision, the hotel
will have four kinds of rooms: beachfront non-smoking, beachfront smoking, lagoon view non-smoking,
and lagoon view smoking. In order to decide how many of each of the four kinds of rooms to plan for,
the Evans family will consider the following information.
a. After adjusting for expected occupancy, the average nightly revenue for a beachfront non-
smoking room is $175. The average nightly revenue for a lagoon view non-smoking room is
$130. Smokers will be charged an extra $15.
b. Construction costs vary. The cost estimate for a lagoon view room is $12,000 and for a
beachfront room is $15,000. Air purifying systems and additional smoke detectors and
sprinklers ad $3000 to the cost of any smoking room. Evans Enterprises has raised $6.3 million
in construction guarantees for this portion of the building.
c. There will be at least 100 but no more than 180 beachfront rooms.
d. Design considerations require that the number of lagoon view rooms be at least 1.5 times the
number of beachfront rooms, and no more than 2.5 times that number.
e. Industry trends recommend that the number of smoking rooms be no more than 50% of the
number of non-smoking rooms.
Develop the linear programming model to maximize revenue.

TOPIC: Product mix

12. Super City Discount Department Store is open 24 hours a day. The number of cashiers need in each four
hour period of a day is listed below.

Period Cashiers Needed

10 p.m. to 2 a.m. 8
2 a.m. to 6 a.m. 4
6 a.m. to 10 a.m. 7
10 a.m. to 2 p.m. 12
2 p.m. to 6 p.m. 10
6 p.m. to 10 p.m. 15
Chapter 4 Linear Programming Applications 9

If cashiers work for eight consecutive hours, how many should be scheduled to begin working in each
period in order to minimize the number of cashiers needed?

TOPIC: Staff scheduling

SOLUTIONS TO PROBLEMS

1. a. Min .3S11 + .25S21 + .40S12 + .30S22 + .50S13 + .35S23

b. Min .06W 11 + .05W 21 + .09W 12 + .06W 22 + .12W 13 + .07W 23
c. S11 + S21  8000
S12 + S22  7000
S13 + S23  6000
d. S11 - W11 = 3000
S21 - W21 = 1800
W11 + S12 - W12 = 4000
W21 + S22 - W22 = 4000
W12 + S13 - W13 = 5000
W22 + S23 - W23 = 2000

2. Let T = the number of TV ads

Let R = the number of radio ads
Let N = the number of newspaper ads

Max 10000T + 3000R + 5000N

s.t. 500T + 200R + 400N  10000
30T + 40R + 25N  1000
T-R4
T, R, N  0

3. Let Lt = loan in period t, t = 1,...,4

It = investment in period t, t = 1,...,4

Max 1.1I4 - 1.085L4

s.t. L1 < 3000

I1 < 4500
L1 - I1 = 100
L2 < 7000
I2 < 8000
L2 + 1.1I1 -1.085L1 - I2 = 120
L3 < 4000
I3 < 6000
L3 + 1.12I2 - 1.085L2 - I3 = 150
L4 < 5000
I4 < 7500
L4 + 1.13I3 -1.085L 3 -I4 = 100
1.10I4 -1.085L 4 > 0
Lt, It > 0

4. Let FM = number of fronts made

10 Chapter 4 Linear Programming Applications

SM = number of seats made

WM = number of wheels made
FP = number of fronts purchased
SP = number of seats purchased
WP = number of wheels purchased

Min 8FM + 6SM + 1WM + 12FP + 9SP + 3WP

s.t. 3FM + 4SM + .5WM < 50000
10FM + 6SM + 2WM < 160000
2FM + 2SM + .1WM < 30000
FM + FP > 12000
SM + SP > 12000
WM + WP > 24000
FM, SM, WM, FP, SP, WP > 0

5. Let Pij = number of toy i to produce in month j

Sij = surplus (inventory) of toy i at end of month j

Min 12P11 + 12P12 + 12P13 + 14P21 + 14P22 + 14P23 + 1S11 + 1S12 + 1S13 + 1.2S21 + 1.2S22 + 1.2S23
s.t. P11 - S11 = 195
S11 + P12 - S12 = 350
S12 + P13 - S13 = 600
S13 > 150
P21 - S21 = 395
S21 + P22 - S22 = 700
S22 + P23 - S23 = 520
S23 > 60
5P11 + 4P21 < 3500
5P12 + 4P22 < 5000
5P13 + 4P23 < 4800
2P11 + 3P21 < 2100
2P12 + 3P22 < 3000
2P13 + 3P23 < 2500
Pij, Sij > 0

6. Let PM = the number of knob and plate units to make

PB = the number of knob and plate units to buy
LM = the number of lock units to make
LB = the number of lock units to buy
KM = the number of key sets to make
KB = the number of key sets to buy

Min 6PM + 10PB + 4LM + 9LB + .5KM + 1KB

s.t. 12PM + 5LM + 2KM < 15000

18PM + 20LM + 20KM < 36000
15PM + 5LM + 2KM < 12000
PM + PB > 1200
LM + LB > 1200
KM + KB > 1200
PM, PB, LM, LB, KM, KB > 0

7. Let P1 = the number of model 1 motors to produce

P2 = the number of model 2 motors to produce
AA = the number of hours allocated to area A
AB = the number of hours allocated to area B
Chapter 4 Linear Programming Applications 11

AC = the number of hours allocated to area C

TBA = the number of hours transferred from B to A
TCA = the number of hours transferred from C to A
TCB = the number of hours transferred from C to B

Min 80P1 + 65P2

s.t. 15P1 + 3P2 - AA < 0

4P1 + 10P2 - AB < 0
4P1 + 8P2 - AC < 0
AA - TBA - TCA = 10000
AB - TCB + TBA = 10000
AC + TCA + TCB = 18000
TBA < 2000
TCA + TCB < 3000
all variables > 0

8. Let D = the number of ounces of dried fruit mix in the blend

N = the number of ounces of nut mix in the blend
C = the number of ounces of cereal mix in the blend

Min .35D + .50N + .20C

s.t. .25D + .375N + C > 3

. 25D + .375N + C < 4
150D + 400N + 50C < 1000
10N + C < 25
.2D - .075N - .2C > 0
-.15D + .85N - .15C < 0
D, N , C > 0

9. a. Let Pi = the production in yards in quarter i

Let Si = the ending surplus (inventory) in quarter i

b. Min .03P1 + .04P2 + .06P3 + .08P4 + .005(S1 + S2 + S3 + S4 )

c. P1  30000
P2  20000
P3  20000
P4  15000
d. P1 - S1 = 10000
S1 + P2 - S2 = 18000
S2 + P3 - S3 = 16000
S3 + P4 - S4 = 30000
P1  30000
P2  20000
P3  20000
P4  15000
12 Chapter 4 Linear Programming Applications

10. Let R = the number of Wildlife Raft Trips to schedule

S = the number of Group Sailing Lessons to schedule

Max 6R + 4S

s.t. R + S < 12
R + 2S < 18
6R > 30
4S > 20
120R + 160S > 1800
R < 10
2S < 12
R,S >0

11. Let BN = the number of beachfront non-smoking rooms

BS = the number of beachfront smoking rooms
LN = the number of lagoon view non-smoking rooms
LS = the number of lagoon view smoking rooms

Max 175BN + 190BS + 130LN + 145LS

s.t. 15000BN + 18000BS + 12000LN + 15000LS < 6,300,000

BN + BS > 100
BN + BS < 180
-1.5BN - 1.5BS + LN + LS > 0
-2.5BN - 2.5BS + LN + LS < 0
- .5BN + BS - .5LN + LS < 0
BN, BS, LN, LS > 0

12. Let TNP = the number of cashiers who begin working at 10 p.m.
TWA = the number of cashiers who begin working at 2 a.m.
SXA = the number of cashiers who begin working at 6 a.m.
TNA = the number of cashiers who begin working at 10 a.m.
TWP = the number of cashiers who begin working at 2 p.m.
SXP = the number of cashiers who begin working at 6 p.m.

Min TNP + TWA + SXA + TNA + TWP + SXP

s.t. TNP + TWA > 4

TWA + SXA > 7
SXA + TNA > 12
TNA + TWP > 10
TWP + SXP > 15
SXP + TNP > 8
all variables > 0