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vii
Contents
Preface xi
Symbols and Abbreviations xv
1 Introduction 1
2 Mathematical Foundations 13
2.1 Matrix Algebra 13
2.2 Vector Algebra 20
2.3 Simultaneous Linear Equation Systems 22
2.4 Linear Dependence 26
2.5 Convex Sets and n-Dimensional Geometry 29
6 Duality Theory 95
6.1 The Symmetric Dual 95
6.2 Unsymmetric Duals 97
6.3 Duality Theorems 100
6.4 Constructing the Dual Solution 106
6.5 Dual Simplex Method 113
6.6 Computational Aspects of the Dual Simplex Method 114
6.7 Summary of the Dual Simplex Method 121
Preface
Introduction
This book deals with the application of linear programming to firm decision
making. In particular, an important resource allocation problem that often
arises in actual practice is when a set of inputs, some of which are limited in
supply over a particular production period, is to be utilized to produce, using
a given technology, a mix of products that will maximize total profit. While a
model such as this can be constructed in a variety of ways and under different
sets of assumptions, the discussion that follows shall be limited to the linear
case, i.e. we will consider the short-run static profit-maximizing behavior of
the multiproduct, multifactor competitive firm that employs a fixed-coefficients
technology under certainty (Dorfman 1951, 1953; Naylor 1966).
How may we interpret the assumptions underlying this profit maximiza-
tion model?
Linear Programming and Resource Allocation Modeling, First Edition. Michael J. Panik.
© 2019 John Wiley & Sons, Inc. Published 2019 by John Wiley & Sons, Inc.
2 1 Introduction
Why is this linear model for the firm important? It is intuitively clear that the
more sophisticated the type of capital equipment employed in a production proc-
ess, the more inflexible it is likely to be relative to the other factors of production
with which it is combined. That is, the machinery in question must be used in
fixed proportions with regard to certain other factors of production (Dorfman
1953, p. 143). For the type of process just described, no factor substitution is pos-
sible; a given output level can be produced by one and only one input combina-
tion, i.e. the inputs are perfectly complementary. For example, it is widely
recognized that certain types of chemical processes exhibit this characteristic
in that, to induce a particular type of chemical reaction, the input proportions
(coefficient) must be (approximately) fixed. Moreover, mechanical processes such
as those encountered in cotton textile manufacturing and machine-tool produc-
tion are characterized by the presence of this limitationality, i.e. in the latter case,
constant production times are logged on a fixed set of machines by a given num-
ber of operators working with specific grades of raw materials.
For example, suppose that a firm produces three types of precision tools
(denoted x1, x2, and x3) made from high-grade steel. Four separate production
operations are used: casting, grinding, sharpening, and polishing. The set of
input–output coefficients (expressed in minutes per unit of output), which
describe the firm’s technology (the firm’s stage one problem, as alluded to
1 Introduction 3
above, has been solved) is presented in Table 1.1. (Note that each of the three
columns represents a separate input activity or process.)
Additionally, capacity limitations exist with respect to each of the four pro-
duction operations in that upper limits on their availability are in force. That
is, per production run, the firm has at its disposal 5000 minutes of casting time,
3000 minutes of grinding time, 3700 minutes of sharpening time, and 2000 min-
utes of polishing time. Finally, the unit profit values for tools x1, x2, and x3 are
$22.50, $19.75, and $26.86, respectively. (Here these figures each depict unit
revenue less unit variable cost and are computed before deducting fixed costs.
Moreover, we are tacitly assuming that what is produced is sold.) Given this
information, it is easily shown that the optimization problem the firm must
solve (i.e. the stage-two problem mentioned above) will look like (1.1):
max f = 22 50x1 + 19 75x2 + 26 86x3 s t subject to
13x1 + 10x2 + 16x3 ≤ 5000
12x1 + 8x2 + 20x3 ≤ 3000
11
8x1 + 4x2 + 9x3 ≤ 3700
5x1 + 4x2 + 6x3 ≤ 2000
x1 , x2 ,x3 ≥ 0
How may we rationalize the structure of this problem? First, the objective func-
tion f represents total profit, which is the sum of the individual (gross) profit
contributions of the three products, i.e.
3
total profit = total profit from xj sales
j=1
3
= unit profit from xj sales number of units of xj sold
j=1
Tools
x1 x2 x3 Operations
13 10 16 Casting
12 8 20 Grinding
8 4 9 Sharpening
5 4 6 Polishing
4 1 Introduction
Next, if we consider the first structural constraint inequality (the others can be
interpreted in a similar fashion), we see that total casting time used per produc-
tion run cannot exceed the total amount available, i.e.
3
total casting time used = total casting time used by xj
j=1
3
= casting time used per unit of xj
j=1
number of units of xj produced ≤ 5000
Finally, the activity levels (product quantities) x1, x2, and x3 are nonnegative,
thus indicating that the production activities are nonreversible, i.e. the fixed
inputs cannot be created from the outputs.
To solve (1.1) we shall employ a specialized computational technique called the
simplex method. The details of the simplex routine, as well as its mathematical
foundations and embellishments, will be presented in Chapters 2–5. Putting com-
putational considerations aside for the time being, the types of information sets
that the firm obtains from an optimal solution to (1.1) can be characterized as
follows. The optimal product mix is determined (from this result management
can specify which product to produce in positive amounts and which ones to omit
from the production plan) as well as the optimal activity levels (which indicate
the exact number of units of each product produced). In addition, optimal
resource utilization information is also generated (the solution reveals the
amounts of the fixed or scarce resources employed in support of the optimal
activity levels) along with the excess (slack) capacity figures (if the total amount
available of some fixed resource is not fully utilized, the optimal solution indicates
the amount left idle). Finally, the optimal dollar value of total profit is revealed.
Associated with (1.1) (hereafter called the primal problem) is a symmetric
problem called its dual. While Chapter 6 presents duality theory in considerable
detail, let us simply note without further elaboration here that the dual problem
deals with the internal valuation (pricing) of the firm’s fixed or scarce resources.
These (nonmarket) prices or, as they are commonly called, shadow prices serve
to signal the firm when it would be beneficial, in terms of recouping forgone
profit (since the capacity limitations restrict the firm’s production and thus
profit opportunities) to acquire additional units of the fixed factors. Relative
to (1.1), the dual problem appears as
min g = 5000u1 + 3000u2 + 3700u3 + 2000u4 s t
13u1 + 12u2 + 8u3 + 5u4 ≥ 22 50
10u1 + 8u2 + 4u3 + 4u4 ≥ 19 75 12
16u1 + 20u2 + 9u3 + 6u4 ≥ 26 86
u1 ,u2 ,u3 ,u4 ≥ 0,
1 Introduction 5
where the dual variables u1, …, u4 are the shadow prices associated with the pri-
mal capacity constraints.
What is the interpretation of the form of this dual problem? First, the objec-
tive g depicts the total imputed (accounting) value of the firm’s fixed
resources, i.e.
total imputed value of all fixed resources
4
= total imputed value of the ith resource
i=1
4
= number of units of the ith resource available
i=1
shadow price of the ith resource
Clearly, the firm must make the value of this figure as small as possible. That is,
it must minimize forgone profit. Next, looking to the first structural constraint
inequality in (1.2) (the rationalization of the others follows suit), we see that the
total imputed value of all resources going into the production of a unit of x1
cannot fall short of the profit per unit of x1, i.e.
total imputed value of all resources per unit of x1
4
= imputed value of the ith resource per unit of x1
i=1
4
= number of units of the ith resource per unit of x1
i=1
shadow price of the ith resource ≥ 22 50
Finally, as is the case for any set of prices, the shadow prices u1, …, u4 are all
nonnegative.
As will become evident in Chapter 6, the dual problem does not have to be
solved explicitly; its optimal solution is obtained as a byproduct of the optimal
solution to the primal problem (and vice versa). What sort of information is pro-
vided by the optimal dual solution? The optimal (internal) valuation of the
firm’s fixed resources is exhibited (from this data the firm can discern which
resources are in excess supply and which ones are “scarce” in the sense that total
profit could possibly be increased if the supply of the latter were augmented)
along with the optimal shadow price configuration (each such price indicates
the increase in total profit resulting from a one unit increase in the associated
fixed input). Moreover, the optimal (imputed) value of inputs for each prod-
uct is provided (the solution indicates the imputed value of all fixed resources
entering into the production of a unit of each of the firm’s outputs) as well as the
optimal accounting loss figures (here, management is provided with informa-
tion pertaining to the amount by which the imputed value of all resources used
6 1 Introduction
to produce a unit of some product exceeds the unit profit level for the same).
Finally, the optimal imputed value of all fixed resources is determined. Inter-
estingly enough, this quantity equals the optimal dollar value of total profit
obtained from the primal problem, as it must at an optimal feasible solution
to the primal-dual pair of problems.
In the preceding model we made the assumption that the various production
activities were technologically independent. However, if we now assume that they
are technologically interdependent in that each product can be produced by
employing more than one process, then we may revise the firm’s objective to
one where a set of production quotas are to be fulfilled at minimum cost. By invok-
ing this assumption we may construct what is called a joint production model.
As far as a full description of this type of production program is concerned, let
us frame it in terms of the short-run static cost-minimizing behavior of a multi-
product, multifactor competitive firm that employs a fixed-coefficients technol-
ogy. How can we interpret the assumptions given in support of this model?
1) Perfect competition in the factor markets – the prices of the firm’s primary
and shadow inputs are given.
2) The firm employs a static model – all prices, the technology, and the output
quotas remain constant over the production period.
3) The firm operates under conditions of certainty – the model is deterministic
in that all prices and the technology behave in a completely systematic (non-
random) fashion.
4) All factors and products are perfectly divisible – fractional quantities of fac-
tors and products are admissible at an optimal feasible solution.
5) The character of the firm’s production activities, which now represent ways
of producing a set of outputs from the application of one unit of a primary
input, is determined by a set of technical decisions internal to the firm. These
output activities are:
a) independent in that no interaction effects exist among activities;
b) linear, i.e. the output/input ratios for each activity are constant along
with the input response to an increase in outputs (if the production of
all outputs in an activity increases by a fixed amount, then the input level
required by the process must increase by the same amount);
c) additive, e.g. if two activities are used simultaneously, the final quantities
of inputs and outputs will be the arithmetic sums of the quantities which
would result if these activities were operated separately. Moreover, the
total cost figure resulting from all output activities equals the sum of
the costs from each individual activity; and
d) finite – the number of output activities or processes available for use dur-
ing any production period is limited.
6) All structural relations exhibit direct proportionality – the objective func-
tion and all constraints are linear; unit cost and the fixed-output per unit of
1 Introduction 7
input values for each activity are directly proportional to the level of oper-
ation of the activity. (Thus marginal cost equals average cost.)
7) The firm’s objective is to minimize total cost subject to a set of structural
activities, fixed output quotas, and nonnegativity restrictions on the activity
levels. This objective is also accomplished in two stages, i.e. in stage one a
technical optimization problem is solved in that the firm chooses a set of out-
put activities which yield the maximum amounts of the various outputs per
unit of the primary factors. Second, the firm solves the indicated constrained
minimization problem.
8) The short-run prevails in that the firm’s minimum output requirements are
fixed in quantity.
For the type of output activities just described, no output substitution is possi-
ble; producing more of one output and less of another is not technologically
feasible, i.e. the outputs are perfectly complementary or limitational in that
they must all change together.
As an example of the type of model just described, let us assume that a firm
employs three grades of the primary input labor (denoted x1, x2, and x3) to pro-
duce four separate products: chairs, benches, tables, and stools. The set of out-
put–input coefficients (expressed in units of output per man-hour) which
describe the firm’s technology appears in Table 1.2. (Here each of the three col-
umns depicts a separate output activity.) Additionally, output quotas exist with
respect to each of the four products in that lower limits on the number of units
produced must not be violated, i.e. per production run, the firm must produce at
least eight chairs, four benches, two tables, and eight stools. Finally, the unit cost
coefficients for the labor grades x1, x2, and x3 are $8.50, $9.75, and $9.08, respec-
tively. (Each of these latter figures depicts unit primary resource cost plus unit
Grades of Labor
x1 x2 x3 Outputs
1 1 1
Chairs
16 14 18
1 1 1
Benches
4 4 6
1 1 1
Tables
20 25 30
1 1 1
Stools
4 3 6
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protect their own native manufacturers, to admit amongst them a
formidable rival, who would inundate them with her produce, and
could take nothing from them in return.
But if the necessities and weakness of Belgium, render it
impracticable for her to continue as she is, and if national
independence be irreconcilable with her prosperity, the question
which occupies the thoughts of her discontented subjects, is to what
quarter she shall turn for relief from without. To attach herself again
to Austria, as before the French revolution, is a matter impracticable
and could be productive of no advantage, even if it were otherwise.
The condition of the Rhenish provinces, under the dominion of
Prussia, would make her eager for a similar incorporation, but this
the interests of Europe, as well as those of Prussia herself forbid.
An union with France would be equally hopeless and incompatible
with the policy of the Congress of Vienna, and would, with the
exception of the districts immediately bordering on the French
frontier, be in the highest degree distasteful to the population at
large. Their annexation to the territory of France in 1794, had been
resisted by the clergy, and its termination in 1814 was hailed with
rapturous impatience by all classes. Their condition under the empire
had been one “of the most insignificant vassalage. Their religious
institutions destroyed, their cherished privileges annihilated, and all
their rights and immunities for which they had been contending for
centuries before, trodden under foot.”[41] Even their commerce and
manufactures were jeopardised by the jealous rivalry of their new
allies, their clergy debased, and their youth drafted off by
conscription to feed the slaughter of Europe. The recollection of this
has left no vigorous desire for a return to fraternization with France,
nor would France herself, however important Belgium might be as a
political acquisition, consult the interest of her native manufactures
by imparting an equality in all her advantages to competitors so
formidable. Still so impatient are the Belgians to fly from the “ills
they have,” that at the present moment, whilst the possibility of war
between France and the rest of Europe occupies the attention of all
the world, I was repeatedly assured in Belgium that it would only
require France to give the signal, and a powerful section of the
people would declare in her favour. So conscious are all parties of
this, that the bare probability of war in Europe is looked to with the
utmost alarm by the government, and the Controleur, an
appropriately named journal, the organ of the clerical party, was
anxiously busied, whilst I was in Ghent, in decrying any idea of a re-
union with France, declaring in one of its publications early in
September: “Et comme nous n’avons pas pour habitude de cacher
notre manière de voir, nous dirons rondement, que nous serions
plutôt Hollandais que Français.—En dépit de M. Rogier.”
Another suggestion has been the partition of Belgium between the
surrounding states, but to this equally insurmountable obstacles
present themselves. Antwerp and the districts on the Dutch frontier,
if assigned to Holland, would have no longer employment for their
capital and ships, and would again sink under the more favoured
rivalry of Amsterdam and Rotterdam; and as Hainault and the
fortresses along the Meuse and the Sambre would necessarily fall to
the lot of France, a measure so menacing to the future security of
Europe, would not be tolerated by her courts, unless these
strongholds were garrisoned by the allies, an expedient which would
be equally opposed by the pride and ambition of the French.
If the further experience should unfortunately decide finally against
the permanence of Belgium as an independent nation, the only
practical expedient which remains, and that which has already
received the sanction of all the great powers of Europe, would be a
return to the disposition made by the Congress of Vienna, and the
reincorporation of Holland and Belgium, to form again the united
kingdom of the Netherlands. Personal aversion to King William would
no longer oppose a barrier to such an arrangement, as his dominion
has passed into other hands, and the Prince of Orange, the present
king at all times enjoyed the popular affections, if not the national
confidence of the people. Should any fresh convulsion arise, which
for the sake of the peace of Europe, not less than for that of King
Leopold, it is most earnestly to be hoped may be yet averted, all I
have either seen or been able to learn from those best informed
upon the matter, leaves little doubt in my mind, that the almost
unanimous wish of the people, should they be compelled to change
their present dynasty, would point to the restoration of the House of
Nassau.
END OF VOL. I.
LONDON:
PRINTED BY SCHULZE AND CO., 13, POLAND STREET.
FOOTNOTES
[1] Made by Nurse and Co. Crawford Street, Bryanstone Square.
[2] So styled in the act by which Philip II, ceded to them the
Sovereignty of the Low Countries.
[3] Wordsworth’s Sonnet to Bruges.
[4] Query, St. Salvador.
[5] I must take this early opportunity of adding my tribute of
gratitude to the compiler of these most invaluable volumes, the
Hand-books of Northern and Southern Germany, they have been
my constant companions, and I cannot do less than unite with
every tourist, whom I met on the continent, in pronouncing them
as matchless in the value and variety of their contents, as they
are faultless in their accuracy.
[6] It is the custom in Belgium, in order to distinguish one
member of the same family, to append to the surname of the
husband that of his lady.
[7] At Ghent, this fee has been reduced to one half the sum.
[8] De l’Industrie en Belgique, Causes de Decadence et de
Prosperité, &c. par M. N. Briavionne, Bruxelles, 1839, vol. ii, p.
345.
[9] By the French commercial code, there are three descriptions
of trading companies. First, sociétés en nom collectif, with all the
attributes of an ordinary partnership in England; secondly,
sociétés en commandite, where the great majority of the
associated capitalists are sleeping partners, with no share in the
management, no name in the firm, and responsible only to the
extent of their registered capital, one or more of the partners,
alone, having the conduct of the establishment, and being
responsible to the public to the full extent of their property; and
thirdly, the sociétés anonymes, which are, in every incident and
particular analogous to the joint stock companies of England, only
with a liability, limited in every instance to the amount of their
shares.
[10] These engines are in great esteem, and I have found them
in almost universal use in Belgium. The one alluded to above, was
consuming from 5½ of to 6½ lbs. of coals, per hour, per horse
power; whilst a low pressure engine in England, would require
from 12 to 14lbs. In this country, they are likewise coming in
greater demand, although here the saving of coal is a matter of
less importance, and may be, in some degree, counterbalanced
by the risk, and more frequent repairs, incidental to high pressure
engines.
[11] The price of coal at Ghent, when I visited its manufactories
was 20 francs for 1000 kilogrammes, or about sixteen shillings a
ton for coals of Mons, which are brought from a considerable
distance by the Scheldt; those of Charleroi are of better quality,
and a shade higher in price. Coals have increased in price in
Belgium within the last few years, as well from the greater
demand, as an apprehension that the coal fields of the Ardennes
were rapidly exhausting, but this alarm has of late been regarded
as groundless. England, with a liberality, which manufactoring
jealousy scarcely sanctions, has recently permitted the free export
of coal both to Belgium, France and Prussia, a boon for which
these governments, which are prohibiting British manufactures,
and their mechanics and mill owners, who are contending with
our own for the market, cannot be too grateful.
[12] Three hundred bundles per day, being as nearly as possible
eleven cuts to the spindle.
[13] COMPARATIVE WAGES PAID WORKERS.
Wages per
Wages per day of Wages per day
Description of day of 11
11½ hours. of 11½ hours.
Workers. hours.
England. Belfast.
Ghent.
Average. Average. Average.
s. d. s. d. d. s. d.
Spreaders 1 3 to 1 6 10 0 11¾
First Drawing 1 0 1 3 8½ 0 8½
Second
1 0 1 3 8½ 0 8½
Drawing
Roving 1 1 1 5 9 0 9¼
Carding 1 0 1 6 7½ to 9½ 0 9¼
Spinner 1 0 1 4 10 0 8½
Doffer 0 8 5½ 0 4¾
Reeler (piece
1 0 1 6 10 to 11 0 9¼
work)
Dyer 2 6 3 0 1s. 4d. 1 3
Bundler 2 6 3 0 1s. 5½ 1 5
Hackler
(Roughing for 1s. 6d. 1s. 4d. 1 7
Machine)
Overlooker 4s. 6d. 3s. 6d. 2 4½
Corrections
p. 91
it was ever dragged to to the field
it was ever dragged to the field
p. 115
p. 153
p. 160
p. 176
p. 252
p. 261
at no measure, how-ver
at no measure, however
p. 268
p. 277
Errata
“Hans Hemling” should read “Hans Memling”.
“Audeghem” should read “Auderghem”.
The errata have been applied to this etext.
*** END OF THE PROJECT GUTENBERG EBOOK BELGIUM, VOL. 1
(OF 2) ***
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