TOPIC: LINEAR PROGRAMMING (SECTION B)

A technique used to deal with multiple limiting factors. Single limiting factor was dealt with in Throughput
5 step approach to optimal plan: Accounting. We use linear programming when we have
shortage of more than one factors.
1. Define Variables
2. Establish constraints If there is one limiting factor/constraints, use
Throughput Accounting.
3. Establish objective function
4. Graph the model If there are more than one limiting factors/constraints,
use Linear Programming.
5. Make Optimal plan
1. Define Variables
Denote the two products with symbols that will be later used in graph. As on a graph, we can only deal
with two variables, hence linear programming can deal with two limiting factors only.
For e.g, let product A = x, let product B = y

2. Establish constraints
See the 2 limiting factors in the question. Lets say they are material (kgs) and labour hrs. Now we will be
told how many total kgs/hrs are available and how many kgs/hrs will be consumed by one unit of the
product.

Product A = 4kgs/unit Only 200kgs are available in total.

Product B = 3kgs/unit
Using our symbols "x" and "y"
If one unit of Product A consumes 4kgs, then how many kgs will x units consume? 4x
If one unit of Product B consumes 3kgs, then how many kgs will y units consume? 3y
And we have 200kgs in total, so the equation would be:
4x + 3y ≤ 200 (We have 200kgs available and the kgs that would be used (4x+3y) should must be less or
equal to 200)

Total output must not exceed 200 units:

x+y ≤ 200
Maximum 20 units of Product B: (no more than 20)
y ≤ 20
Atleast 15 units of Product B: (means the units produced of B should must be 15 or more than 15. Not less
than 15)
y ≥ 15 (y should be equal to or greater than 15)
Atleast half of the output must be Product A:
½ (x+y) ≤ x (total output would be x+y, so half of the output would be denoted by ½ of x+y, and that should
must be equal to or greater than half.
½ (x+y) ≤ x
2x ≤ x+y
2x - x ≤ y
x≤y
Units of Product B should not be more than 2/3 of total output.
y ≤ 2/3 (x+y)
3y ≤ 2 (x+y)
3y ≤ 2x + 2y
3y - 2y ≤ 2x
y ≤ 2x
3. Establish objective function
In linear programming, there are only two objectives of an organisation, either its profit maximization or
cost minimization.
Contribution / unit on Product A is $7 and Contribution on Product B is $4. Company's objective is to
maximise profit.
The company wants to maximise 7x+4y
Cost / unit of Product A is $5 and Cost / unit of Product B is $6. Company's objective is to minimise cost.
The company wants to minimise 5x+6y

4. Graph the model

There are 5 tasks in this step:
Task 1: Solve and plot the equation of constraints
Task 2: Find feasible region
Task 3: Mark all corner points of feasible region
Task 4: Name the corner points
Task 5: Find coordinates of x and y on corner points (x and y axis)

5. Make Optimal Plan

Put x & y values of all corner points one by one found in Task 5 in objective function equation & solve.
If its profit equation, choose the highest answer among all values. Choose the lowest if it’s a cost equation.

Question:
A. Co makes two products Super and Deluxe. A constraint faced by the company is that monthly machine
capacity is restricted to 400 hrs. Super requires 5 machine hrs per unit while Deluxe requires 1.5 machine
hrs per unit. As per government obligation, total output must not exceed 150 units. Super earns a
contribution of $100 per unit and Deluxe earns a contribution $200 per unit.
Required:
How many units (combination/optimal plan) of Super and Deluxe shall be produced to maximise profits?
Solution:
1. Define Variables
Let Super be "x" Let Deluxe be "y"
2. Establish constraints
5x + 1.5y ≤ 400 (We have to make all the possible equations ourselves and solve)
x + y ≤ 150
x,y ≥ 0 (x,y are units, they can be as low as 0 but not negative)
(this is called Non-negativity constrant.
It has no use in the question and won't affect it. Whatever the question is, along with other constrants, must
write this. We just have to show this written.But there are marks for writing it.

3. Establish objective function

The company wants to maximise 100x + 200y
4. Graph the model
Task 1: Solve and plot the equation of constraints
Solve all the constraints given in the question. In the equation, keep 1st variable as zero to find
the value of the 2nd variable, then keep 0 as value of 2nd variable and find the value of first
variable.
Plot the two points on a graph and join their lines.
Solve each equation, and mark all of them on graph and join their respective lines.

5x + 1.5y ≤ 400 x + y ≤ 150

5(0)+1.5y≤ 400 x = 0, y = 150
x = 0, y = 267 y = 0, x = 150
y = 0, x = 80 TASK 3: MARK ALL CORNER POINTS
These small black dots are corner
points of the feasible area.
TASK 4: NAME THE CORNER POINTS
y 300 For e.g, P, Q, R, S

250 TASK 2: FIND FEASIBLE AREA

200 As both the equations we solved had "less

P than" sign for variables x and y. The feasible
150 area will be below these two lines.
Q And effectively, the feasible area is the one
100 in blue and this part is the common
underneath area for the two lines.
50
S

R x
50 100 150 200 250

TASK 5: FIND VALUES/COORDINATES OF X & Y ON CORNER POINTS OF FEASIBLE REGION:

P: (0, 150) - Q: (50,100) - R (0,0) - S (80,0)
-------------------------------------------------------------
The point Q is formed when the two lines based on constraint equation intersect.To find the value of Q, we need to solve two
constraints equation thru simultaneous equation method. Jo lines intersect krri hon point par unki equations leni hain.
It says that one variable of both equations must hold the same value.
--------------------------------------------------------
5x + 1.5y = 400 5x + 1.5y = 400
(x + y = 150) * 5 5x + 5y = 750
Then, we have to subtract these two:
0x + -3.5y = -350
y = 100
Put y = 100 in any of the two above equations to find the value of x.
5x + 1.5(100) = 400
x = 50

IMPORTANT:
5. Make Optimal Plan At a single point in graph, only two lines can intersect.
And to find the coordinates of x and y at that point, we can
100x + 200y use simultaneous equation method.
If three lines are intersecting at one point in your graph, then
P (0, 150) 30,000 it means that your graph is wrong.
Q (50,100 2500 There's no way in mathematics to find coordinates of a point
R (0,0) Nil where three lines are intersecting.
S (80,0) 8000
Since it was a profit equation, the highest profit is 30,000. So Point P is our optimal plan.
In the first step, X was Super and Y was Deluxe.
Make 0 units of Super and 150 units of Deluxe to maximise profits.

Note: If in an equation, there's only one variable and to draw it on graph, just make a perpendicular line
from the relevant axis.
e.g. y ≤ 100, so in equation it would be y = 100, x = 0. It would be a straight line from y axis.
SLACK, SURPLUS AND SHADOW PRICES:
Slack: It occurs when resources are under utilised i.e the optimal plan does not use full amount of
resource that is available. Slack is associated with ≤ constraint. If the given resource is fully utilised and
nothing is left, then it is called a binding constraint.
Surplus: It occurs when more than a given requirement is met. It is associated with ≥ constraint.
If only the requirement is met, then there is no surplus. this is for units produced

We just have to put the optimal plan's final x and y values in our all constraint equations to access
whether each constraint is slack, binding or surplus.

Example: (using data from the question done above)

5x + 1.5y ≤ 400
x + y ≤ 150
The optimal plan produced following results:
X = 0, Y = 150
Required: Find whether each constraint is slack, binding or surplus.
Solution:
5x + 1.5y ≤ 400
5(0) + 1.5(150) ≤ 400
0 + 225 ≤ 400
400 hrs were available and we only used 225 hrs, so there is Slack of 175 hrs (400-225).

x + y ≤ 150
0 + 150 ≤ 150
The govt obligation was not to exceed from 150 units, and we exactly produced 150 units.
So, there is no surplus.

Shadow Price/Dual Price: It is the increase in contribution created by the availability of one additional
unit of scarce resource. It hence represents the maximum premium a company will be willing to pay to
acquire one additional unit of scarce resource.

How to find shadow price?

It has 4 step approach:
1. Note optimal point equation
2. Increase by 1
3. Resolve the above equations to get new values of x & y
4. Put these new values of x & y in objective function equation.
"Increase in contribution is the shadow price."

Step 1: Note optimal point equation

Let's say, in the above question solved, our optimal plan point was Q and not P.
Write down the constraint equation of the two lines that intersected to form Point Q.
5x + 1.5y = 400 x + y = 150
Step 2:
We want to find shadow price for machine hours, and the equation related to machine hrs is 5x + 1.5y = 400,
and we have to increase 400 by 1.
Hamne jis ki bhi shadow price find krni ho, ussi ki equation main
5x + 1.5y = 401 hrs/kgs/units (whatever is given) ko 1 se increase krna hai.
x + y = 150

Step 3: Resolve the above equations to get new values of x & y

(thru simultaneous)
5x + 1.5y = 401 5x + 1.5y = 401
(x + y = 150)*5 5x + 5y = 750
5x + 5y = 750 0x -3.5y = -349
y = 99.7

5x + 1.5y = 401
5x + 1.5(99.7) = 401
x = 50.29

Step 4: Put these new values of x & y in objective function equation.

100x + 200y
100(50.29) + 200(99.7)
contribution per limiting factor is the shadow price
24969
Conclusion:
When we didn't add 1 to the relevant constraint equation, the optimal point was P and the highest
contribution was 30,000.
30,000-24969
5031 (shadow price, the maximum amount the business will pay to get that 1 additional machine hr)

If in a question we are required to calculate shadow price for two variables, don't solve them in one go.
(Adding 1 to both equations at a time).First add 1 to one equation and let the 2nd equation as it is. Then
solve it.
In the next step, add 1 to the 2nd equation and let the first remain as it is. Then solve.

A shadow price for a scarce resource is its opportunity cost. It is the amount of contribution
that would be lost if one unit less of that resource were available. It is similarly the amount
of additional contribution that would be earned if one unit more of that resource were
available. (This is on the assumption that the scarce resource is available at its normal
variable cost.)
Only resources that meet at the optimal point will have a shadow price.

The other constraints lines are above this point and

there therefore must be surplus of these resources available. Resources that have a surplus
do not have a shadow price.