Problem 1: EC Company

Objective Function:

Maximize Profit
Max 90M + 84B + 70R + 60D

Constraints:
a. limited advertising budget
b. limited salesforce availability
c. production requirement
d. retail stores distribution requirement.

Whereas:
Constraint A: Advertising expenditures ≤ Budget
Constraint B: Sales time used ≤ Time available
Constraint C: Radios produced = Management requirement
Constraint D: Retail distribution ≥ Contract requirement

Decision Variables

M = the number of units produced for the marine equipment distribution channel
B = the number of units produced for the business equipment distribution channel
R = the number of units produced for the national retail chain distribution channel
D = the number of units produced for the direct mail distribution channel

Constraint A: 10M + 8B + 9R + 15D ≤ 5000

Constraint B: 2M + 3B + 3R ≤ 1800
Constraint C: M + B + R + D = 600
Constraint D: R ≥ 150

Then;
Max 90M + 84B + 70R + 60D

10M + 8B + 9R + 15D ≤ 5000 Advertising Budget

2M + 3B + 3R ≤ 1800 Salesforce Availability
M+B+R+D = 600 Production Level
R ≥ 150 Retail Stores Requirement
M, B, R, D ≥0

Solution:
M = 25 R = 150
B = 425 D=0

10M + 8B + 9R + 15D
10(25) + 8(425) + 9(150) + 15(0)
250 + 3400 + 1350 + 0

Distribution Channel Volume Advertising Allocation Salesforce Allocation (hrs.)

Marine distributors 25 $ 250 50
Business distributors 425 3400 1275
National retail stores 150 1350 450
Direct mail 0 0 0 .
Totals 600 $5000 1775
Projected total profit = $48,450
Problem 2: WMF Inc.

Objective Function:
Maximize Projected Return
Max 0.073A + 0.103P + 0.064M + 0.075H + 0.045G

Constraints:
a. limited investment budget
b. return requirement in neither oil or steel industry should receive more than $50,000
c. requirement that government bonds be at least 25% of the steel industry investment
d. Pacific Oil cannot be more than 60% of the total oil industry investment.

Whereas :
Constraint A: Investment = Budget
Constraint B: Oil / Steel Return ≤ $50,000
Constraint C: Government Bonds ≥ 25% of Steel Industry Investment
Constraint D: Pacific Oil ≤ 60%

Decision Variables

A = dollars invested in Atlantic Oil

P = dollars invested in Pacific Oil
M = dollars invested in Midwest Steel
H = dollars invested in Huber Steel
G = dollars invested in government bonds

Constraint A: A + P + M + H + G = 100,000
Constraint B: A + P ≤ 50,000
M +H ≤ 50,000
Constraint C: G ≥ 0.25 (M + H)
Constraint D: P ≤ 0.60 (A + P)

Then;
Max 0.073A + 0.103P + 0.064M + 0.075H + 0.045G

A+P+M+H+G = 100,000 Available Fund

A+P ≤ 50,000 Oil Industry Maximum
M +H ≤ 50,000 Steel Industry Maximum
G ≥ 0.25 (M + H) Government Bonds Minimum
P ≤ 0.60 (A + P Pacific Oil Restriction
A, P, M, H, G ≥0

Investment Amount Expected Annual Return

Atlantic Oil $ 20,000 $1460
Pacific Oil 30,000 3090
Huber Steel 40,000 3000
Government bonds 10,000 450 .
Totals $100,000 $8000

Expected annual return of $8000

Overall rate of return = 8%
 Problem 3-6

A. In our reference book, Intro Management Science, look for the Case on Product
Mix (in the chapter Linear Programming: Sensitivity Analysis & Interpretation of
Solution). Perform the analysis and show your solution.

Nuts Shipment Cost Per

Type of Mix Regular Deluxe Holiday Used   Amount Shipment Cost / lbs.
Almond 0.15 0.2 0.25 6000 ≤ 6000 7500 1.25
Brazil 0.25 0.2 0.15 6500 ≤ 7500 7125 0.95
Filbert 0.25 0.2 0.15 6500 ≤ 7500 6750 0.9
Pecan 0.1 0.2 0.25 5500 ≤ 6000 7200 1.2
Walnut 0.25 0.2 0.2 6750 ≤ 7500 7875 1.05

Profit 1.65 2 2.25  

Cost of Nuts Used 1.0325 1.07 1.1  
Net Profit 0.62 0.93 1.15 2.7037.5

Orders (pounds) 10000 3000 5000

       
Optimal Product
Mix 10000 16250 5000

SENSITIVITY REPORT

Variable Final Reduced Objective Allowable Allowable

Cells Name Value Cost Coefficient Increase Decrease
Optimal Product Mix:
$B$14 Regular 10000 -0.08 0.6175 0.08 1.00E+30
Optimal Product Mix:
$C$14 Deluxe 16250 0 0.93 1.00E+30 0.01
Optimal Product Mix:
$D$14 Holiday 5000 -0.0125 1.15 0.0125 1.00E+30
             
Final Shadow Allowable Allowable
Constraints Name Value Price Constrains RHS Increase Decrease
$E$2 Almond Nuts Used 6000 4.65 6000 500 2650
$E$3 Brazil Nuts Used 6500 0 7500 1.00E+30 1000
$E$4 Filbert Nuts Used 6500 0 7500 1.00E+30 1000
$E$5 Pecan Nuts Used 5500 0 6000 1.00E+30 500
$E$6 Walnut Nuts Used 6750 0 7500 1.00E+30 750
 B. n our reference book, Intro Management Science, look for the Case on Investment Strategy
(in the chapter Linear Programming: Sensitivity Analysis & Interpretation of Solution).
Perform the analysis and show your solution.

Decision Variables:

G = growth fund (amount invested)

I = income fund (amount invested)

M = money market fund (amount invested)

Objective Function:

Maximize Profit = .18G + .1251I + .075M

Constraint Function:

G + I + M < 800,000 (Funds available)

0.8G -0.21I - 0.2M >= 0 (Minimum growth fund)

0.6G - 0.4I - 0.4M <= 0 (Maximum growth fund)

-0.2G + 0.8I - 0.2M >= 0 (Minimum income fund)

-0.5G + 0.5I - 0.5M <= 0 (Maximum income fund)

-0.3G - 0.3I + 7M >= 0 (Minimum money market fund)

0.05G + 0.21I - 0.04M <= 0 (Maximum risk)

Managerial Report:

1. How much should be invested?

Optimal Solution: 94,133.34

Growth fund = 248,888.91

Income fund = 160,000

Money Market = 391,111.09

Total = 800,000

Yield: 94,133/800,000 =11.8%

2. How much yield would increase & how would investment change?

Optimal Solution: 98, 800

Growth fund = 293,333

Income fund = 160,000

Money Market = 346,667

Total = 800,000

Yield: 98,800/800,000 =12.4%

3. How would your investment recommendation change if the annual yield for the growth fund
were revised downward to 16% or even to 14%?

Make a new LP formula and optimal solution because the decrease to 0.14 is not within the
coefficient range of the objective function.

Maximize Profit = .14G + .1251I + .075M

G + I + M < 800,000 (Funds available)

0.8G -0.21I - 0.2M >= 0 (Minimum growth fund)

0.6G - 0.4I - 0.4M <= 0 (Maximum growth fund)

-0.2G + 0.8I - 0.2M >= 0 (Minimum income fund)

-0.5G + 0.5I - 0.5M <= 0 (Maximum income fund)

-0.3G - 0.3I + 7M >= 0 (Minimum money market fund)

0.05G + 0.21I - 0.04M <= 0 (Maximum risk)

Optimal Solution: 85, 066.66

4. How would the original recommendation change if the amount invested in the growth fund is not
allowed to exceed the amount invested in the income fund?

To meet the additional requirement, the formula would need to add a new constraint because the
current optimal solution has less invested in the income fund than it does in the growth fund.

Objective Function:

Maximize Profit = .18G + .1251I + .075M

Constraint Function:
G + I + M < 800,000 (Funds available)
0.8G -0.21I - 0.2M >= 0 (Minimum growth fund)
0.6G - 0.4I - 0.4M <= 0 (Maximum growth fund)
-0.2G + 0.8I - 0.2M >= 0 (Minimum income fund)
-0.5G + 0.5I - 0.5M <= 0 (Maximum income fund)
-0.3G - 0.3I + 7M >= 0 (Minimum money market fund)
0.05G + 0.21I - 0.04M <= 0 (Maximum risk)
G - I <= 0

5. What is your recommendation as to whether use of this model is possible?

This model can be used because it is simple to formulate, develop, and apply. If the yield
estimates change, the objective function coefficients will change as well, which will solve the problem if
the change is outside the range of the objective coefficient.

F. In the book, Intro Management Science, look for the Case on Textile Mills Scheduling
(in the chapter Linear Programming Applications in Mktg, Finance, & OM). Perform the analysis
and show your solution.

let: X3R = Yards of fabric 3 on regular looms

X4R = Yards of fabric 4 on regular looms
X5R = Yards of fabric 5 on regular looms
X1D = Yards of fabric 1 on dobbie looms
X2D = Yards of fabric 2 on dobbie looms
X3D = Yards of fabric 3 on dobbie looms
X4D = Yards of fabric 4 on dobbie looms
X5D = Yards of fabric 5 on dobbie looms
Y1 = Yards of fabric 1 purchased
Y2 = Yards of fabric 2 purchased
Y3 = Yards of fabric 3 purchased
Y4 = Yards of fabric 4 purchased
Y5 = Yards of fabric 5 purchased

Profit contribution per Yard

Manufactu Purcha
red sed
1 0.33 0.19
2 0.31 0.16
Fabric 3 0.61 0.5
4 0.73 0.54
5 0.2 0

Production Times in Hours per yard

Regular Dobbie
 0.2159
1 8
0.2159
2 8
Fabric 3 0.1912 0.1912
4 0.1912 0.1912
5 0.2398 0.2398

Objective function:

If maximum
Max 0.61X3R + 0.73X4R+ 0 20X5R+ 0 33X1D+
0.31X2D
+ 0.61X3D 0.73X4D+ 0 20X5D +0.19Y1+0.16Y2+0 50Y3+0.54Y4
If minimim
Min 0.49X3R +0.51X4R+0.50X5R +0.66X1D+ 0.55X2D+
0.49X3D
+0.51X4D +050X5D +0.80Y1+0.70Y2+0.60Y3+0.70Y4+0.70Y5

Regular hours available

30 Looms x 30 ys * 24hours / d * a * y =
21600

Dobbie hours available

8 Looms x 30 days x 24 hours/day
= 5760

Constraints:
0.192X3R +0.1912X4R +0.2398X5R ≤ 21600 Regular

0.21598X1D +0.21598X2D +0.1912X3D+ 0.1912X4D+

0.2398X5D ≤ 5760 Dobbie

Demands Constraints
X1D + Y1 =
16500
X2D+Y2 = 22000
X3R+X3D + Y3=62000
X4R+X4D+Y4 = 7500
XER + XSD + Y5 = 62000

Production Purchase Schedule (Yards)

Regul Dobb Purchas
ar ie ed
 1 4669 11831
2200
2 0
Fabric 3 27711 34289
4 7500
5 62000

D. In the book, Intro Management Science, look for the Case on Planning an Advertising
campaign (in the chapter Linear Programming Applications in Mktg, Finance, & OM). Perform
the analysis and show your solution.

Decision Variables:

T1 = number of television advertisements with rating of 90 and 4000 new customers

T2 = number of television advertisements with rating of 40 and 1500 new customers

R1 = number of radio advertisements with rating of 25 and 2000 new customers

R2 = number of radio advertisements with rating of 15 and 1200 new customers

N1 = number of newspaper advertisements with rating of 10 and 1000 new customers

N2 = number of newspaper advertisements with rating of 5 and 800 new customers

Objective Function:

Max 90T1 + 55T2 + 25R1 + 20R2 + 10N1 + 5N2

Constraint Function:

1.) 1 T1 ≤ 10 (television ads)

2.) 1 R1 ≤ 15 (radio ads)
3.) 1 N1 ≤ 20 (newspaper ads)
4.) 10,000 T1 10,000T2 + 3,000 R2 + 1,000 N1 + 1000 N2 ≤ 279,000 (Total budget)
5.) 4,000 T1 + 1,500T2 + 2,000R1 + 1,200 R2 + 1,000 N1 + 800 N2 ≥ 100,000 (New
Customers)
6.) -2T1 - 2T2 + 1R1 + 1R2 ≥ 0
7.) 1T1 + 1T2 ≤ 20
8.) 10,000 T1 + 10,000 T2 ≥ 140,000 (television budget)
9.) 3,000 R1 + 3,000 R2 ≤ 99,000 (radio advertising budget)
10.) 1,000 N1 + 1,000 N2 ≥ 30,000 (newspaper budget)
Managerial Report
Develop a model that can be used to determine the advertising budget allocation for the Flamingo Grill.
Include a discussion of the following in your report.
1. A schedule showing the recommended number of television, radio, and newspaper advertisements and
the budget allocation for each medium. Show the total exposure and indicate the total number of potential
new customers reached.

Summary of the Optimal Solution

T1 + T2 = 10 + 5 = 15 Television advertisements
R1 + R2 = 15 + 18 = 33 Radio advertisements
N1 + N2 = 20 + 10 = 30 Newspaper advertisements

Advertising Schedule:

Media Number of Ads Budget

Television 15 $150,000

Radio 33 99,000

Newspaper 30 30,000

TOTALS 78 $279,000

Total Exposure Rating: 2,160

Total New Customers Reached: 127,100 (Surplus constraint 5)

2. How would the total exposure change if an additional $10,000 were added to the advertising budget?
The dual price shows that total exposure increases 0.006 points for each one dollar increase in the
advertising budget. Right Hand Side Ranges show this dual price applies for a budget increase of up
to $294,000 - $279,000 = $15,000. Thus the dual price applies for the $10,000 increase.
 Total Exposure Rating would increase by 10,000(0.006) = 60 points
A $10,000 increase in the advertising budget is a 3.6% increase. But, it only provides a 2.8%
increase in total exposure. Management may decide that the additional exposure is not worth the cost.
This is a discussion point.
3. A discussion of the ranges for the objective function coefficients. What do the ranges indicate about
how sensitive the recommended solution is to HJ’s exposure rating coefficients?
The ranges for the exposure rating of 90 for the first 10 television ads show that the solution
remains optimal as long as the exposure rating is 55 or higher. This indicates that the solution is not very
sensitive to the exposure rating HJ has provided. Indeed, we would draw the same conclusion after
reviewing the next four ranges. We could conclude that Flamingo does not have to be concerned about
the exact exposure rating. The only concern might be the newspaper exposure rating of 5. A rating of 5.5
or better can be expected to alter the current optimal solution.

4. After reviewing HJ’s recommendation, the Flamingo’s management team asked how the
recommendation would change if the objective of the advertising campaign was to maximize the number
of potential new customers reached. Develop the media schedule under this objective.

MAX 4000T1 + 1500T2 + 2000R1 + 1200R2 + 1000N1 + 800N2

Solving provides the following Optimal Solution

T1 + T2 = 10 + 4 = 14 Television advertisements

R1 + R2 = 15 + 13 = 28 Radio advertisements

N1 + N2 = 20 + 35 = 55 Newspaper advertisements

Advertising Schedule

Media Number of Ads Budget

Television 14 $140,000

Radio 28 83,000

Newspaper 55 55,000

TOTALS 97 $279,000
Total New Customers Reached: 139,600
Total Exposure Rating 90(10) + 55(4) + 25(15) + 20(13) + 10(20) + 5(35) = 2130

5. Compare the recommendations from parts 1 and 4. What is your recommendation for the Flamingo
Grill’s advertising campaign?

The solution with the goal of reaching the greatest number of potential new customers appears
appealing. The total number of ads increased by 24% from 78 to 97, and the number of potential new
customers reached increased by 139,600 – 127,100 = 12,500. (9.8 percent ). Because total exposure is a
more general measure of advertising effectiveness, it may appear to be the preferred goal. Image, message
recall, and repeat customer appeal are all aspects of exposure. However, with the goal of maximizing
reach, many more potential new customers will be reached in this case, and total exposure is only reduced
by 2160 – 2130 = 30 points (1.4 percent ).
Problem 7
Problem 8
Problem 9
Problem 10