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Linear Programming Notes From Roque

Linear programming is a quantitative technique used to optimize resource allocation under constraints. It can be applied to problems like determining optimal product mixes or workforce scheduling. The technique involves identifying decision variables, expressing the objective function and constraints in terms of those variables, and solving the linear program using methods like the graphic or simplex method. An illustrative problem shows how to maximize contribution margin from two doll products by determining the optimal production quantities given constraints on department hours. Shadow prices represent the impact of relaxing a binding constraint by one unit.

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162 views

Linear Programming Notes From Roque

Linear programming is a quantitative technique used to optimize resource allocation under constraints. It can be applied to problems like determining optimal product mixes or workforce scheduling. The technique involves identifying decision variables, expressing the objective function and constraints in terms of those variables, and solving the linear program using methods like the graphic or simplex method. An illustrative problem shows how to maximize contribution margin from two doll products by determining the optimal production quantities given constraints on department hours. Shadow prices represent the impact of relaxing a binding constraint by one unit.

Uploaded by

giezele ballatan
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Linear Programming

- A quantitative technique used to find the optimal solution to short-term resource allocation problems such as:
a. Maximization of the revenue, contribution margin or profit function
b. Minimization of a cost function, subject to constraints (limited resources and production capacity levels)

Other Business Applications of Linear Programming


1. Determination of the best product mix
2. Determination of the optimum materials mix
3. Assignment of jobs to manufacturing equipment
4. Workforce scheduling
5. Determination of transportation routes

Steps in Formulating a Linear Program


1. Identify the decision variables
2. Express the objective and constraint functions in terms of the decision variables identified in step 1

Decision Variable
- The unknowns used to construct the objective and constraint function
- The values of such variables are the outputs from the linear programming process

Constraint
- Limit the values of variables
- The constraint equations reflect the types of inputs or resources being allocated

Methods for Solving Linear Programming Problems


1. Graphic Method
- Limited to problems with only two variables
2. Simplex Method
- Applicable even when there are more than two variables
- It is based on matrix or linear algebra and provides a systematic way of algebraically evaluating each corner point in the
feasible area

Illustrative Problem
Meemon Corporation produces two products, Girl Rag Doll (G) and Boy Rag Doll (B), which must be processed in two
departments, Sewing and Finishing. Sewing has 240 hours available per month, while Finishing has 192 hours. The
number of hours required to process the products in the two departments and the contribution margin per unit of the
products are as follows:
Girl Rag Doll (G) Boy Rag Doll (B)
Contribution margin per unit 32 24
Required hours per unit:
Sewing 4 hours 2 hours
Finishing 2 hours 4 hours

Required: How many units of Girl Rag Dolls and Boy Rag Dolls must be produced to maximize contribution margin?

Total CM = 32G + 24B


4G + 2B = 240
2G + 4G = 192

4G + 2B = 240
2G + 4B = 192 multiply by 2

4G + 2B = 240
4G + 8B = 384 then deduct
-6B = -144
-6 -6

B = 24
Substitute
B = 24
4G + 2B = 240
4G + 2(24) = 240
4G = 240 – 48
4G = 192
4 4
G = 48

Shadow Price (dual value of a scarce resource)


- The amount by which the value of the optimal solution of the objective function in a linear programming problem will
change if a one-unit change is made in a binding constraint
- Computation of shadow prices is an application of sensitivity analysis
- Shadow price is the income that would be lost (opportunity cost) by not adding an additional unit of a scarce resource
(constraint)
- In deciding whether to add an additional scarce resource or not, the shadow price must be greater than the accrual cost of
such additional resource

Computation of Shadow Price


1. Add one unit of the scarce resource under consideration
2. Find the new optimal solution after adding one unit of the scarce resource (constraint)
3. The shadow price is the difference between the profit in original optimal solution and the profit in the new optimal
solution

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