Section 9.2, Problem 19 Comquat owns four production plants at which personal computers are produced.

comquat
can sell up to 20000 computers per year at a price of $3500 per computer. For each plant the production capacity , the
production cost per computer, and the fixed cost of operating a plant for a year are given in Table 29. Determine how

Table 29: Data for the computerproduction problem

Production Plant fixed cost Cost per

Plant capacity ($ Million) Computer ($)
1 10000 9 1000
2 8000 5 1700
3 9000 3 2300
4 6000 1 2900

Comquat can maximise its yearly profit from computer production.

We define the decision variables

xi , the
( number of computers produced at plant i , where i = {1, . . . , 4}
1 if any computers are produced at plant i , where i = {1, . . . , 4}
yi ,
0 otherwise

m
fi ,

er as
the given fixed cost (in US$)for plant i , where i = {1, . . . , 4}
ci , the given unit production cost (in US$) for plant i , where i = {1, . . . , 4}

co
capi , the given capacity for plant i , where i = {1, . . . , 4}

eH w
o.
We proceed to formulate the problem as: rs e
ou urc
4
X
max z = (3500 ci ) xi fi ⇥ 106 yi (491)
i=1
o

subject to
aC s

4
X
v i y re

xi  20000 (492)
i=1
xi  capi yi 8i 2 {1, . . . , 4} (493)
xi 0 8i 2 {1, . . . , 4} (494)
ed d

yi 2 {0, 1} 8i 2 {1, . . . , 4} (495)

ar stu

The objective in (491) maximizes profit by subtracting fixed and variable costs from sales. Demand is limited by (492).
The x and y variables are linked in (493), while the constraint also serve to enforce capacity constraints. If assume that
you cannot shut down a facility, i.e. you have to use all four, you just need to introduce the following constraint as well.
sh is

4
X
Th

yi = 4 (496)
i=1

The LINGO code for the problem with (496) included is given below. If you want to see the difference in solution, just
comment the constraints out by inserting a “!” at the start of the line.
The following assessment criteria is used:

The following criteria are assessed using a 0-1-2-3 rubric:

1. Definition of decision variables.

2. Objective function.
3. Constraining limited demand.
4. Constraining capacity.
5. Linking of variables, specifically production with fixed cost.
6. Accessibility of information.

116
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 Lingo code for WV4_9-2_19
Model:

Title: Winston and Venkataramanan - Section 9-2 - Problem 19;

Sets:
plant/1..4/:x, y, cap, c, f;
Endsets

Data:
cap = 10000 8000 9000 6000;
c = 1000 1700 2300 2900;
f = 9 5 3 1;
Enddata

! Objective function; [Objective]

Max = @Sum(plant(i): (3500 - c(i))*x(i) - (f(i)*(10^6))*y(i));

! Demand constraint; [Demand]

@Sum(plant(i): x(i)) <= 20000;

! Capacity constraint and linking x & y;

m
@For(plant(i): [Capacity]

er as
x(i) <= cap(i)*y(i);
);

co
eH w
! Must use all four plants;
@Sum(plant(i): y(i)) = 4;

o.
! Binary variables; @For(plant(i):
rs e
ou urc
@Bin(y(i));
);
End
o
aC s
v i y re
ed d
ar stu
sh is
Th

117
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 Section 9.2, Problem 44 Venture capital firm JD is trying to determine in which 10 projects it should invest. It
knows how much money is available for investment each of the next N years, the NPV of each project, and the cash
required by each project during each of the next N years (see Table 30).

Table 30: Investment details for the JD problem

Investment Project
($ Million) 1 2 3 4 5 6 7 8 9 10
Year 1 6 9 12 15 18 21 24 27 30 35
Year 2 3 5 7 9 11 13 15 17 19 21
Year 3 5 7 9 12 12 14 16 11 20 24
NPV 20 30 40 50 60 70 80 90 100 130

1. Write a LINGO program to determine the projects in which JD should invest

2. Use your LINGO program to determine which of the 10 projects should be selected. Each project requires cash
investment during the next three years. During year 1, $80 million is available for investment. During year 2, $60
million is available for investment. During year 3, $70 million is available for investment. (All figures are in millions

m
of dollars)

er as
co
eH w
1. This problem is way too easy to fit in so late in the problems. We let
(

o.
1 if project i is undertaken, where i = {1, 2 . . . , 10}
rs e
xi ,
0 otherwise
ou urc
ni , the given NPV for project i , where i = {1, 2 . . . , 10}
cij , the given amount of cash (in millions of dollars) required by project i in year j, where i =
{1, 2, . . . , 10}, j = {1, 2, 3}
o

aj , the given amount of cash (in millions of dollars) available for investment in year j, where j =
aC s

{1, 2, 3}
v i y re

We formulate the problem as follows.

10
X
max z ni xi (497)
ed d

i=1
ar stu

subject to

10
X
(498)
sh is

cij xi  aj 8j 2 {1, 2, 3}
i=1
Th

xi 2 {0, 1} 8i 2 {1, 2 . . . , 10} (499)

The objective function maximises the NPV of the selected projects in (497). The limited cash for each year is
enforced through (498).

2. The solution provided by the LINGO code sees a total NPV of $280 million. There are more than one solution
providing this return, one which is achieved by selecting projects 6, 7, and 10.

The following assessment criteria is used:

The following criteria are assessed using a 0-1-2-3 rubric:

1. Definition of decision variables.

2. Objective function.
3. Constraining limited available cash.
4. Accessibility of information.

118
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 Lingo code for WV4_9-2_44.
Model:

Title: Winston and Venkataramanan - Section 9-2 - Problem 44;

Sets:
project/1..10/: x, n;
year/1..3/: a;
cash(project,year): c;
Endsets

Data:
c = 6 3 5
9 5 7
12 7 9
15 9 12
18 11 12
21 13 14
24 15 16
27 17 11
30 19 20
35 21 24;

m
n = 20 30 40 50 60 70 80 90 100 130;

er as
a = 80 60 70;
Enddata

co
eH w
! Maximize NPV;
[Objective]

o.
Max = @Sum(project(i): n(i)*x(i));
rs e
ou urc
! Cash requirements;
@For(year(j):
[Year_] @Sum(project(i): c(i,j)*x(i)) <= a(j);
);
o
aC s

! Binary;
v i y re

@For(project(i):
@Bin(x(i))
);

End
ed d
ar stu
sh is
Th

119
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