17/10/2023

LINEAR PROGRAMMING

 In the previous sessions, we discussed:

LP Formulation
DECISION MODELLING 
 LP Solution (Lingo)
MBAA TERM-II
 Slack/ surplus Variable
(2023-24)
 Reduced costs

SESSION 5  Sensitivity Analysis

LINEAR PROGRAMMING  changes in the coefficients of the objective function
[SENSITIVITY ANALYSIS, INTERPRETATION OF SOLUTION,  changes in the right-hand side value of a constraint
DIFFERENT APPLICATIONS]
 Shadow Price/ Dual Price

Dr. Devendra Kumar Pathak

 Simultaneous Changes
(M.Tech. & Ph.D., IIT Delhi)
Assistant Professor,  Range of Optimality and 100% Rule 2
Operations Management & Decision Sciences,  Range of Feasibility and 100% Rule
Indian Institute of Management (IIM) Kashipur

1 2

RECAP: REDUCED COST RECAP: SA- OBJECTIVE FUNCTION COEFFICIENTS

 The reduced cost for a decision variable whose value  ROO:

is 0 in the optimal solution is:  Let us consider how changes in the objective
 It is the amount by which objective function function coefficients might affect the optimal
coefficient of a DV should improve (increase for solution.
maximization problems, decrease for minimization  The range of optimality for each coefficient
problems) before this DV can be a part of optimal
provides the range of values over which the current
solution.
solution will remain optimal.

 The reduced cost for a decision variable whose

value is > 0 in the optimal solution is 0.  Managers should focus on those objective coefficients
that have a narrow range of optimality and
Max 5x1 + 7x2 coefficients near the endpoints of the range.
s.t. x1 < 6
2x1 + 3x2 < 19
3 4
x1 + x2 < 8
x1 > 0 and x2 > 0

3 4

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RECAP: SA- RIGHT HAND SIDES RECAP: SHADOW PRICE

 Let us consider how a change in the right-hand side  Graphically, a shadow price is determined by
for a constraint might affect the feasible region and adding +1 to the right hand side value in question
perhaps cause a change in the OFV. and then resolving for the optimal solution in
terms of the same two binding constraints.
 Shadow Price: It is the marginal value of a resource
by which the OFV will improve (for a positive  The shadow price for a nonbinding constraint
shadow price) when increasing the RHS of is 0.
constraint by 1 unit.
 A negative shadow price indicates that the objective
 The range of feasibility is the range over which the function will not improve if the RHS is increased.
shadow price is applicable.

5 6

5 6

EXAMPLE 1: LINGO SOLUTION EXAMPLE 1

Max 5x1 + 7x2 Max 5x1 + 7x2

s.t. x1 < 6 s.t. x1 < 6
2x1 + 3x2 < 19 2x1 + 3x2 < 19
7 8
x1 + x2 < 8 x1 + x2 < 8
x1 > 0 and x2 > 0 x1 > 0 and x2 > 0

7 8

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EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

Olympic Bike is introducing two new lightweight A supplier delivers 100 pounds of the aluminum
bicycle frames, the Deluxe and the Professional, to be alloy and 80 pounds of the steel alloy weekly.
made from special aluminum and steel alloys. The
Aluminum Alloy Steel Alloy
anticipated unit profits are $10 for the Deluxe and Deluxe 2 3
$15 for the Professional. Professional 4 2

The number of pounds of each alloy needed per

frame is summarized on the next slide. How many Deluxe and Professional frames should
Olympic produce each week to maximize Profit?

9 10

9 10

EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Model Formulation  Model Formulation (continued)

 Verbal Statement of the Objective Function
Maximize total weekly profit. Max 10x1 + 15x2 (Total Weekly Profit)
 Verbal Statement of the Constraints
s.t. 2x1 + 4x2 <=100 (Aluminum Available)
Total weekly usage of aluminum alloy < 100
pounds. 3x1 + 2x2 <=80 (Steel Available)
Total weekly usage of steel alloy < 80 pounds. x1 >= 0, x2 >=0
 Definition of the Decision Variables
x1 = number of Deluxe frames produced weekly.
x2 = number of Professional frames produced
weekly.

11 12

11 12

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EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

13 14

13 14

EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Optimal Solution  Range of Optimality

According to the output:

Question
x1 (Deluxe frames) = 15 Suppose the profit on deluxe frames is
increased to $20. Is the earlier solution still
x2 (Professional frames) = 17.5
optimal? What is the value of the objective function
Objective function value = $412.50 when this unit profit is increased to $20?

Max 10x1 + 15x2

s.t. 2x1 + 4x2 < 100

15 3x1 + 2x2 < 80 16
x1, x2 > 0

15 16

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EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Sensitivity Report

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
X2 Profes. 17.500 0.000 15.000 5.000 8.333

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000

17 18

17 18

EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Range of Optimality  Range of Optimality

Answer Question
The output states that the solution remains If the unit profit on deluxe frames were $6
optimal as long as the objective function coefficient of instead of $10, would the optimal solution change?
x1 is between 7.5 and 22.5. Because 20 is within this
range, the optimal solution will not change. The
optimal profit will change: 20x1 + 15x2 = 20(15)
+ 15(17.5) = $562.50.

19 20

19 20

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EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Range of Optimality  Range of Optimality

Variable Cells
Model Final Reduced Objective Allowable Allowable Answer
Variable Name Value Cost Coefficient Increase Decrease The output states that the solution remains
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
X2 Profes. 17.500 0.000 15.000 5.000 8.333 optimal as long as the objective function coefficient
of x1 is between 7.5 and 22.5. Because 6 is
Constraints outside this range, the optimal solution would
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease change.
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000

21 22

21 22

EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Range of Feasibility  Range of Feasibility

Variable Cells
Question Model Final Reduced Objective Allowable Allowable
If the right-hand side of constraint 2 is Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
increased by 2, what will be the effect on the X2 Profes. 17.500 0.000 15.000 5.000 8.333
OFV?
Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000
Max 10x1 + 15x2
s.t. 2x1 + 4x2 < 100
3x1 + 2x2 < 80 23 24

x1, x2 > 0

23 24

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EXAMPLE 2: OLYMPIC BIKE CO. SIMULTANEOUS CHANGES

 Range of Feasibility  Range of Optimality and 100% Rule

The 100% rule states that simultaneous changes in
Answer objective function coefficients will not change the
A shadow price represents the improvement optimal solution as long as the sum of the
in the objective function value per unit increase percentages of the change divided by the
in the right-hand side. corresponding maximum allowable change in the
range of optimality for each coefficient [i.e.,
∑(Change*100)/(AI or AD)DV] does not exceed 100%.
Since the RHS remains within the range of feasibility,
shadow price will be applicable. Moreover, the
objective function value increases by $2.50.

25 26

25 26

EXAMPLE 2: OLYMPIC BIKE CO. EXAMPLE 2: OLYMPIC BIKE CO.

 Range of Optimality and 100% Rule  Range of Optimality

Variable Cells
Question Model Final Reduced Objective Allowable Allowable
If simultaneously the profit on Deluxe frames Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
was raised to $16 and the profit on Professional X2 Profes. 17.500 0.000 15.000 5.000 8.333
frames was raised to $17, would the current
solution be optimal? Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000
Max 10x1 + 15x2
s.t. 2x1 + 4x2 < 100
3x1 + 2x2 < 80 27 28
x1, x2 > 0

27 28

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EXAMPLE 2: OLYMPIC BIKE CO. SIMULTANEOUS CHANGES

Range of Optimality and 100% Rule  Range of Feasibility and 100% Rule
The 100% rule states that simultaneous changes in
Answer right-hand sides will not change the dual prices as
If c1 = 16, the amount c1 changed is 16 - 10 = 6 . long as the sum of the percentages of the changes
The maximum allowable increase is 22.5 - 10 = 12.5, divided by the corresponding maximum allowable
so this is a 6/12.5 = 48% change. change in the range of feasibility for each right-hand
If c2 = 17, the amount that c2 changed is 17 - 15 = 2. The side [i.e., ∑(Change*100)/(AI/ AD)RHS] does not
maximum allowable increase is 20 - 15 = 5 so this is a exceed 100%.
2/5 = 40% change. The sum of the change
percentages is 88%. Since this does not exceed
100%, the optimal solution would not change.
Max 10x1 + 15x2
29 30
s.t. 2x1 + 4x2 < 100
3x1 + 2x2 < 80
x1, x2 > 0

29 30

EXAMPLE 3 EXAMPLE 3

 Consider the following linear program:

Min 6x1 + 9x2 ($ cost)

s.t. x1 + 2x2 < 8

10x1 + 7.5x2 > 30
x2 > 2

x1 , x2 > 0

31 32

31 32

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EXAMPLE 3 EXAMPLE 3

Sensitivity Report  Optimal Solution

Variable Cells According to the output:

Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 X1 1.500 0.000 6.000 6.000 6.000 x1 = 1.5
X2 X2 2.000 0.000 9.000 1E+30 4.500
x2 = 2.0
Constraints Objective function value = 27.00
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.500 0 8.000 1E+30 2.500
2 2 30.000 -0.600 30.000 25.000 15.000
3 3 2.000 -4.500 2.000 2.000 2.000

33 34

33 34

EXAMPLE 3 EXAMPLE 3

 Range of Optimality Sensitivity Report

Variable Cells
Question Model Final Reduced Objective Allowable Allowable
Suppose the unit cost of x1 is decreased to $4. Variable Name Value Cost Coefficient Increase Decrease
X1 X1 1.500 0.000 6.000 6.000 6.000
Is the current solution still optimal? What is the X2 X2 2.000 0.000 9.000 1E+30 4.500
value of the objective function when this unit cost is
decreased to $4? Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.500 0 8.000 1E+30 2.500
Min 6x1 + 9x2 2 2 30.000 -0.600 30.000 25.000 15.000
3 3 2.000 -4.500 2.000 2.000 2.000
s.t. x1 + 2x2 < 8
10x1 + 7.5x2 > 30
35 36
x2 > 2
x1, x2 > 0

35 36

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EXAMPLE 3 EXAMPLE 3

 Range of Optimality  Range of Optimality

Answer Question
The output states that the solution remains How much can the unit cost of x2 be
optimal as long as the objective function coefficient decreased without concern for the optimal
of x1 is between 0 and 12. Because 4 is within solution changing?
this range, the optimal solution will not change.
However, the optimal total cost will change:
4x1 + 9x2 = 4(1.5) + 9(2.0) = $24.00.

37 38

37 38

EXAMPLE 3 EXAMPLE 3

Sensitivity Report  Range of Optimality

Variable Cells
Model Final Reduced Objective Allowable Allowable Answer
Variable Name Value Cost Coefficient Increase Decrease The output states that the solution remains
X1 X1 1.500 0.000 6.000 6.000 6.000
X2 X2 2.000 0.000 9.000 1E+30 4.500 optimal as long as the objective function coefficient
of x2 does not fall below 4.5.
Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.500 0 8.000 1E+30 2.500
2 2 30.000 -0.600 30.000 25.000 15.000
3 3 2.000 -4.500 2.000 2.000 2.000

39 40

39 40

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EXAMPLE 3 EXAMPLE 3

 Range of Optimality and 100% Rule Sensitivity Report

Variable Cells
Question Model Final Reduced Objective Allowable Allowable
If simultaneously the cost of x1 was raised to $7.5 Variable Name Value Cost Coefficient Increase Decrease
X1 X1 1.500 0.000 6.000 6.000 6.000
and the cost of x2 was reduced to $6, would the X2 X2 2.000 0.000 9.000 1E+30 4.500
current solution remain optimal?
Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.500 0 8.000 1E+30 2.500
2 2 30.000 -0.600 30.000 25.000 15.000
Min 6x1 + 9x2 3 3 2.000 -4.500 2.000 2.000 2.000
s.t. x1 + 2x2 < 8
10x1 + 7.5x2 > 30 41 42
x2 > 2
x1, x2 > 0

41 42

EXAMPLE 3 EXAMPLE 3
 Range of Optimality and 100% Rule
 Range of Feasibility
Answer
If c1 = 7.5, the amount c1 changed is 7.5 - 6 = Question
1.5. The maximum allowable increase is 12 - 6 If the right-hand side of constraint 3 is
= 6, so this is a 1.5/6 = 25% change. If c2 = 6, the increased by 1, what will be the effect on the
amount that c2 changed is 9 - 6 = 3. The OFV?
maximum allowable decrease is 9 - 4.5 = 4.5, so
this is a 3/4.5 = 66.7% change. The sum of the
change percentages is 25% + 66.7% = 91.7%.
Because this does not exceed 100%, the optimal Min 6x1 + 9x2
solution would not change. Min 6x + 9x s.t. x1 + 2x2 < 8
1 2
s.t. x1 + 2x2 < 8 10x1 + 7.5x2 > 30
43 44
10x1 + 7.5x2 > 30 x2 > 2
x2 > 2
x1, x2 > 0 x1, x2 > 0

43 44

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EXAMPLE 3 EXAMPLE 3

Sensitivity Report  Range of Feasibility

Variable Cells
Model Final Reduced Objective Allowable Allowable Answer
Variable Name Value Cost Coefficient Increase Decrease A shadow price represents the improvement
X1 X1 1.500 0.000 6.000 6.000 6.000
X2 X2 2.000 0.000 9.000 1E+30 4.500 in the objective function value per unit increase
in the right-hand side. A negative shadow price
Constraints indicates a negative improvement in the objective,
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease which in this problem means an increase in total cost
1 1 5.500 0 8.000 1E+30 2.500 because we're minimizing. Since the RHS remains
2 2 30.000 -0.600 30.000 25.000 15.000 within the range of feasibility, shadow price will be
3 3 2.000 -4.500 2.000 2.000 2.000
applicable. However, the objective function value (cost)
increases by $4.50.
45 46

45 46

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