Slides by

John
Loucks
St. Edward’s
University

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
1
 Chapter 4: Linear Programming Applications
in Marketing, Finance, and Operations
 Marketing Applications
 Financial Applications
 Operations Management Applications

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
2
 Marketing Applications

 Media Selection
• One application of linear programming in marketing
is media selection.
• LP can be used to help marketing managers
allocate a fixed budget to various advertising media.
• The objective is to maximize reach, frequency, and
quality of exposure.
• Restrictions on the allowable allocation usually arise
during consideration of company policy, contract
requirements, and media availability.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
3
 Media Selection

SMM Company recently developed a new instant

salad machine, has $282,000 to spend on advertising.
The product is to be initially test marketed in the Dallas
area. The money is to be spent on a TV advertising blitz
during one weekend (Friday, Saturday, and Sunday) in
November.
The three options available are: daytime advertising,
evening news advertising, and Sunday game-time
advertising. A mixture of one-minute TV spots is desired.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
4
 Media Selection

Estimated Audience
Ad Type Reached With Each Ad Cost Per Ad
Daytime 3,000 $5,000
Evening News 4,000 $7,000
Sunday Game 75,000 $100,000

SMM wants to take out at least one ad of each type

(daytime, evening-news, and game-time). Further, there
are only two game-time ad spots available. There are
ten daytime spots and six evening news spots available
daily. SMM wants to have at least 5 ads per day, but
spend no more than $50,000 on Friday and no more
than $75,000 on Saturday.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
5
 Media Selection

 Define the Decision Variables

DFR = number of daytime ads on Friday
DSA = number of daytime ads on Saturday
DSU = number of daytime ads on Sunday
EFR = number of evening ads on Friday
ESA = number of evening ads on Saturday
ESU = number of evening ads on Sunday
GSU = number of game-time ads on Sunday

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
6
 Media Selection

 Define the Objective Function

Maximize the total audience reached:
Max (audience reached per ad of each type)
x (number of ads used of each type)
Max 3000DFR +3000DSA +3000DSU +4000EFR
+4000ESA +4000ESU +75000GSU

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7
 Media Selection

 Define the Constraints

Take out at least one ad of each type:
(1) DFR + DSA + DSU > 1
(2) EFR + ESA + ESU > 1
(3) GSU > 1
Ten daytime spots available:
(4) DFR < 10
(5) DSA < 10
(6) DSU < 10
Six evening news spots available:
(7) EFR < 6
(8) ESA < 6
(9) ESU < 6

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
8
 Media Selection

 Define the Constraints (continued)

Only two Sunday game-time ad spots available:
(10) GSU < 2
At least 5 ads per day:
(11) DFR + EFR > 5
(12) DSA + ESA > 5
(13) DSU + ESU + GSU > 5
Spend no more than $50,000 on Friday:
(14) 5000DFR + 7000EFR < 50000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
9
 Media Selection

 Define the Constraints (continued)

Spend no more than $75,000 on Saturday:
(15) 5000DSA + 7000ESA < 75000
Spend no more than $282,000 in total:
(16) 5000DFR + 5000DSA + 5000DSU + 7000EFR
+ 7000ESA + 7000ESU + 100000GSU7 < 282000
Non-negativity:
DFR, DSA, DSU, EFR, ESA, ESU, GSU > 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
10
 Media Selection

 The Management Scientist Solution

Objective Function Value = 199000.000

Variable Value Reduced Costs

DFR 8.000 0.000

DSA 5.000 0.000
DSU 2.000 0.000
EFR 0.000 0.000
ESA 0.000 0.000
ESU 1.000 0.000
GSU 2.000 0.000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
11
 Media Selection

 Solution Summary
Total new audience reached = 199,000
Number of daytime ads on Friday = 8
Number of daytime ads on Saturday = 5
Number of daytime ads on Sunday = 2
Number of evening ads on Friday = 0
Number of evening ads on Saturday = 0
Number of evening ads on Sunday = 1
Number of game-time ads on Sunday = 2

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
12
 Marketing Applications

 Marketing Research
• A firm conducts marketing research to learn about
consumer characteristics, attitudes, and preferences.
• Marketing research services include designing the
study, conducting surveys, analyzing data collected,
and providing recommendations for the client.
• In the research design phase, targets or quotas may
be established for the number and types of
respondents to be surveyed.
• The marketing research firm’s objective is to conduct
the survey so as to meet the client’s needs at a
minimum cost.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
13
 Marketing Research

Market Survey, Inc. (MSI) specializes in evaluating

consumer reaction to new products, services, and
advertising campaigns. A client firm requested MSI’s
assistance in ascertaining consumer reaction to a recently
marketed household product.
During meetings with the client, MSI agreed to
conduct door-to-door personal interviews to obtain
responses from households with children and households
without children. In addition, MSI agreed to conduct both
day and evening interviews.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
14
 Marketing Research

The client’s contract called for MSI to conduct

1000 interviews under the following quota guidelines:
1. Interview at least 400 households with children.
2. Interview at least 400 households without children.
3. The total number of households interviewed during
the evening must be at least as great as the number
of households interviewed during the day.
4. At least 40% of the interviews for households with
children must be conducted during the evening.
5. At least 60% of the interviews for households
without children must be conducted during the
evening.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
15
 Marketing Research

Because the interviews for households with children

take additional interviewer time and because evening
interviewers are paid more than daytime interviewers, the
cost varies with the type of interview. Based on previous
research studies, estimates of the interview costs are as
follows:

Interview Cost
Household Day Evening
Children $20 $25
No children $18 $20

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
16
 Marketing Research

In formulating the linear programming model for the

MSI problem, we utilize the following decision-variable
notation:
DC = the number of daytime interviews of households
with children
EC = the number of evening interviews of households
with children
DNC = the number of daytime interviews of households
without children
ENC = the number of evening interviews of households
without children

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
17
 Marketing Research

The objective function:

Min 20DC + 25EC + 18DNC + 20ENC
The constraint requiring a total of 1000 interviews is:
DC + EC + DNC + ENC = 1000
The specifications concerning the types of interviews:
• Households with children: DC + EC > 400
• Households without children: DNC + ENC > 400
• At least as many evening interviews as day interviews
EC + ENC > DC + DNC or -DC + EC - DNC + ENC > 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
18
 Marketing Research

The specifications concerning the types of interviews:

• At least 40% of interviews of households with children
during the evening:
EC > 0.4(DC + EC) or -0.4DC + 0.6EC > 0
• At least 60% of interviews of households without
children during the evening:
ENC > 0.6(DNC + ENC) or -0.6DNC + 0.4ENC > 0
The non-negativity requirements:
DC, EC, DNC, ENC > 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
19
 Marketing Research

The 4-variable, 6-constraint LP problem formulation is:

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
20
 Marketing Research

 Optimal Solution
• Minimum total cost = $20,320
Number of Interviews
Household Day Evening Totals
Children 240 160 400
No children 240 360 600
Totals 480 520 1000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
21
 Financial Applications

 LP can be used in financial decision-making that

involves capital budgeting, make-or-buy, asset
allocation, portfolio selection, financial planning, and
more.
 Portfolio selection problems involve choosing specific
investments – for example, stocks and bonds – from
a variety of investment alternatives.
 This type of problem is faced by managers of banks,
mutual funds, and insurance companies.
 The objective function usually is maximization of
expected return or minimization of risk.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
22
 Portfolio Selection

Winslow Savings has $20 million available for

investment. It wishes to invest over the next four
months in such a way that it will maximize the total
interest earned over the four month period as well as
have at least $10 million available at the start of the
fifth month for a high rise building venture in which it
will be participating.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
23
 Portfolio Selection

For the time being, Winslow wishes to invest

only in 2-month government bonds (earning 2% over
the 2-month period) and 3-month construction loans
(earning 6% over the 3-month period). Each of these
is available each month for investment. Funds not
invested in these two investments are liquid and earn
3/4 of 1% per month when invested locally.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
24
 Portfolio Selection

Formulate a linear program that will help

Winslow Savings determine how to invest over the
next four months if at no time does it wish to have
more than $8 million in either government bonds or
construction loans.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
25
 Portfolio Selection

 Define the Decision Variables

Gi = amount of new investment in government
bonds in month i (for i = 1, 2, 3, 4)
Ci = amount of new investment in construction
loans in month i (for i = 1, 2, 3, 4)
Li = amount invested locally in month i,
(for i = 1, 2, 3, 4)

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
26
 Portfolio Selection

 Define the Objective Function

Maximize total interest earned in the 4-month period:
Max (interest rate on investment) x (amount invested)
Max .02G1 + .02G2 + .02G3 + .02G4
+ .06C1 + .06C2 + .06C3 + .06C4
+ .0075L1 + .0075L2 + .0075L3 + .0075L4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
27
 Portfolio Selection

 Define the Constraints

Month 1's total investment limited to $20 million:
(1) G1 + C1 + L1 = 20,000,000

Month 2's total investment limited to principle and

interest invested locally in Month 1:
(2) G2 + C2 + L2 = 1.0075L1
or G2 + C2 - 1.0075L1 + L2 = 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
28
 Portfolio Selection

 Define the Constraints (continued)

Month 3's total investment amount limited to principle
and interest invested in government bonds in Month
1 and locally invested in Month 2:
(3) G3 + C3 + L3 = 1.02G1 + 1.0075L2
or - 1.02G1 + G3 + C3 - 1.0075L2 + L3 = 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
29
 Portfolio Selection

 Define the Constraints (continued)

Month 4's total investment limited to principle and
interest invested in construction loans in Month 1,
government bonds in Month 2, and locally invested in
Month 3:
(4) G4 + C4 + L4 = 1.06C1 + 1.02G2 + 1.0075L3
or - 1.02G2 + G4 - 1.06C1 + C4 - 1.0075L3 + L4 = 0

$10 million must be available at start of Month 5:

(5) 1.06C2 + 1.02G3 + 1.0075L4 > 10,000,000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
30
 Portfolio Selection

 Define the Constraints (continued)

No more than $8 million in government bonds at any
time:
(6) G1 < 8,000,000
(7) G1 + G2 < 8,000,000
(8) G2 + G3 < 8,000,000
(9) G3 + G4 < 8,000,000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
31
 Portfolio Selection

 Define the Constraints (continued)

No more than $8 million in construction loans at
any time:
(10) C1 < 8,000,000
(11) C1 + C2 < 8,000,000
(12) C1 + C2 + C3 < 8,000,000
(13) C2 + C3 + C4 < 8,000,000

Non-negativity:
Gi, Ci, Li > 0 for i = 1, 2, 3, 4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
32
 Portfolio Selection

 Computer Solution
Objective Function Value = 1429213.7987
Variable Value Reduced Cost
G1 8000000.0000 0.0000
G2 0.0000 0.0000
G3 5108613.9228 0.0000
G4 2891386.0772 0.0000
C1 8000000.0000 0.0000
C2 0.0000 0.0453
C3 0.0000 0.0076
C4 8000000.0000 0.0000
L1 4000000.0000 0.0000
L2 4030000.0000 0.0000
L3 7111611.0772 0.0000
L4 4753562.0831 0.0000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
33
 Financial Planning

Hewlitt Corporation established an early retirement

program as part of its corporate restructuring. At the close
of the voluntary sign-up period, 68 employees had elected
early retirement. As a result of these early retirements, the
company incurs the following obligations over the next eight
years:

Year 1 2 3 4 5 6 7 8

$ Required 430 210 222 231 240 195 225 255

The cash requirements (in thousands of dollars) are due at

the beginning of each year.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
34
 Financial Planning

The corporate treasurer must determine how much

money must be set aside today to meet the eight yearly
financial obligations as they come due. The financing
plan for the retirement program includes investments in
government bonds as well as savings. The investments
in government bonds are limited to three choices:
Years to
Bond Price Rate (%) Maturity
1 $1150 8.875 5
2 1000 5.500 6
3 1350 11.750 7

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
35
 Financial Planning

The government bonds have a par value of $1000,

which means that even with different prices each bond
pays $1000 at maturity. The rates shown are based on
the par value. For purposes of planning, the treasurer
assumed that any funds not invested in bonds will be
placed in savings and earn interest at an annual rate of
4%.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
36
 Financial Planning

 Define the Decision Variables

F = total dollars required to meet the retirement
plan’s eight-year obligation
B1 = units of bond 1 purchased at the beginning of
year 1
B2 = units of bond 2 purchased at the beginning of
year 1
B3 = units of bond 3 purchased at the beginning of
year 1
S = amount placed in savings at the beginning of
year i for i = 1, . . . , 8

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
37
 Financial Planning

 Define the Objective Function

The objective function is to minimize the total dollars
needed to meet the retirement plan’s eight-year
obligation: Min F
 Define the Constraints
A key feature of this type of financial planning problem
is that a constraint must be formulated for each year of
the planning horizon. It’s form is:
(Funds available at the beginning of the year)
- (Funds invested in bonds and placed in savings)
= (Cash obligation for the current year)

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
38
 Financial Planning

 Define the Constraints

A constraint must be formulated for each year of the
planning horizon in the following form:
Year 1: F – 1.15B1 – 1B2 – 1.35B3 – S1 = 430
Year 2: 0.08875B1 + 0.055B2 + 0.1175B3 – 1.04S1 – S2 = 210
Year 3: 0.08875B1 + 0.055B2 + 0.1175B3 – 1.04S2 – S3 = 222
Year 4: 0.08875B1 + 0.055B2 + 0.1175B3 – 1.04S3 – S4 = 231
Year 5: 0.08875B1 + 0.055B2 + 0.1175B3 – 1.04S4 – S5 = 240
Year 6: 1.08875B1 + 0.055B2 + 0.1175B3 – 1.04S5 – S6 = 195
Year 7: 1.055B2 + 0.1175B3 – 1.04S6 – S7 = 225
Year 8: 1.1175B3 – 1.04S7 – S8 = 255

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
39
 Financial Planning

 Optimal solution to the 12-variable, 8-constraint LP

problem:
• Minimum total obligation = $1,728,794
Bond Units Purchased Investment Amount
1 B1 = 144.988 $1150(144.988) = $166,736
2 B2 = 187.856 $1000(187.856) = $187,856
3 B3 = 228.188 $1350(228.188) = $308,054

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
40
 Operations Management Applications

 LP can be used in operations management to aid in

decision-making about product mix, production
scheduling, staffing, inventory control, capacity
planning, and other issues.
 An important application of LP is multi-period
planning such as production scheduling.
 Usually the objective is to establish an efficient, low-
cost production schedule for one or more products
over several time periods.
 Typical constraints include limitations on production
capacity, labor capacity, storage space, and more.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
41
 Production Scheduling

Chip Hoose is the owner of Hoose Custom Wheels.

Chip has just received orders for 1,000 standard wheels
and 1,250 deluxe wheels next month and for 800 standard
and 1,500 deluxe the following month. All orders must be
filled.
The cost of making standard wheels is $10 and deluxe
wheels is $16. Overtime rates are 50% higher. There
are 1,000 hours of regular time and 500 hours of overtime
available each month. It takes .5 hour to make a
standard wheel and .6 hour to make a deluxe wheel.
The cost of storing a wheel from one month to the next is
$2.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
42
 Production Scheduling

 Define the Decision Variables

We want to determine the regular-time and overtime
production quantities in each month for standard and
deluxe wheels.

Month 1 Month 2
Wheel Reg. Time Overtime Reg. Time Overtime
Standard SR1 SO1 SR2 SO2
Deluxe DR1 DO1 DR2 DO2

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
43
 Production Scheduling

 Define the Decision Variables

We also want to determine the inventory quantities
for standard and deluxe wheels.

SI = number of standard wheels held in

inventory from month 1 to month 2
DI = number of deluxe wheels held in
inventory from month 1 to month 2

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
44
 Production Scheduling

 Define the Objective Function

We want to minimize total production and inventory
costs for standard and deluxe wheels.
Min (production cost per wheel)
x (number of wheels produced)
+ (inventory cost per wheel)
x (number of wheels in inventory)
Min 10SR1 + 15SO1 + 10SR2 + 15SO2
+ 16DR1 + 24DO1 + 16DR2 + 24DO2
+ 2SI + 2DI

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
45
 Production Scheduling

 Define the Constraints

Production Month 1 = (Units Required) + (Units Stored)
Standard:
(1) SR1 + SO1 = 1,000 + SI or SR1 + SO1 - SI = 1,000
Deluxe:
(2) DR1 + DO1 = 1,250 + DI or DR1 + DO1 -–DI = 1,250

Production Month 2 = (Units Required) - (Units Stored)

Standard:
(3) SR2 + SO2 = 800 - SI or SR2 + SO2 + SI = 800
Deluxe:
(4) DR2 + DO2 = 1,500 - DI or DR2 + DO2 + DI = 1,500

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
46
 Production Scheduling

 Define the Constraints (continued)

Reg. Hrs. Used Month 1 < Reg. Hrs. Avail. Month 1
(5) .5SR1 + .6DR1 < 1000
OT Hrs. Used Month 1 < OT Hrs. Avail. Month 1
(6) .5SO1 + .6DO1 < 500
Reg. Hrs. Used Month 2 < Reg. Hrs. Avail. Month 2
(7) .5SR2 + .6DR2 < 1000
OT Hrs. Used Month 2 < OT Hrs. Avail. Month 2
(8) .5SO2 + .6DO2 < 500

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
47
 Production Scheduling

 Computer Solution
Objective Function Value = 67500.000
Variable Value Reduced Cost
SR1 500.000 0.000
SO1 500.000 0.000
SR2 200.000 0.000
SO2 600.000 0.000
DR1 1250.000 0.000
DO1 0.000 2.000
DR2 1500.000 0.000
DO2 0.000 2.000
SI 0.000 2.000
DI 0.000 2.000
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
48
 Production Scheduling

 Solution Summary
Thus, the recommended production schedule is:
Month 1 Month 2
Reg. Time Overtime Reg. Time Overtime
Standard 500 500 200
600
Deluxe 1250 0 1500 0

No wheels are stored and the minimum total cost is

$67,500.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
49
 Workforce Assignment

National Wing Company (NWC) is gearing up for

the new B-48 contract. NWC has agreed to produce 20
wings in April, 24 in May, and 30 in June.
Currently, NWC has 100 fully qualified workers. A
fully qualified worker can either be placed in production
or can train new recruits. A new recruit can be trained to
be an apprentice in one month. After another month, the
apprentice becomes a qualified worker. Each trainer can
train two recruits.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
50
 Workforce Assignment

The production rate and salary per employee

type is listed below.

Type of Production Rate Wage

Employee (Wings/Month) Per Month
Production .6 $3,000
Trainer .3 $3,300
Apprentice .4 $2,600
Recruit .05 $2,200

At the end of June, NWC wishes to have no recruits

or apprentices, but have at least 140 full-time workers.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
51
 Workforce Assignment

 Define the Decision Variables

Pi = number of producers in month i
(where i = 1, 2, 3 for April, May, June)
Ti = number of trainers in month i
(where i = 1, 2 for April, May)
Ai = number of apprentices in month i
(where i = 2, 3 for May, June)
Ri = number of recruits in month i
(where i = 1, 2 for April, May)

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
52
 Workforce Assignment

 Define the Objective Function

Minimize total wage cost for producers, trainers,
apprentices, and recruits for April, May, and June:
Min 3000P1 + 3300T1 + 2200R1 + 3000P2 + 3300T2
+ 2600A2+2200R2 + 3000P3 + 2600A3

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
53
 Workforce Assignment

 Define the Constraints

Total production in Month 1 (April) must equal or
exceed contract for Month 1:
(1) .6P1 + .3T1 +.05R1 > 20
Total production in Months 1-2 (April, May) must
equal or exceed total contracts for Months 1-2:
(2) .6P1 + .3T1 + .05R1 + .6P2 + .3T2 + .4A2 + .05R2 > 44
Total production in Months 1-3 (April, May, June)
must equal or exceed total contracts for Months 1-3:
(3) .6P1+.3T1+.05R1+.6P2+.3T2+.4A2+.05R2
+.6P3+.4A3 >
74
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
54
 Workforce Assignment

 Define the Constraints (continued)

The number of producers and trainers in a month
must equal the number of producers, trainers, and
apprentices in the previous month:
(4) P1 - P2 + T1 - T2 = 0
(5) P2 - P3 + T2 + A2 = 0
The number of apprentices in a month must equal
the number of recruits in the previous month:
(6) A2 - R1 = 0
(7) A3 - R2 = 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
55
 Workforce Assignment

 Define the Constraints (continued)

Each trainer can train two recruits:
(8) 2T1 - R1 > 0
(9) 2T2 - R2 > 0
In April there are 100 employees that can be
producers or trainers:
(10) P1 + T1 = 100
At the end of June, there are to be at least 140
employees:
(11) P3 + A3 > 140
Non-negativity:
P1, T1, R1, P2, T2, A2, R2, P3, A3 > 0
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
56
 Workforce Assignment

 Solution Summary
P1 = 100, T1 = 0, R1 = 0
P2 = 80, T2 = 20, A2 = 0, R2 = 40
P3 = 100, A3 = 40
Total Wage Cost = $1,098,000
April May June July
Producers 100 80 100 140
Trainers 0 20 0 0
Apprentices 0 0 40 0
Recruits 0 40 0 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
57
 Product Mix

Floataway Tours has $420,000 that can be used

to purchase new rental boats for hire during the
summer. The boats can be purchased from two
different manufacturers.
Floataway Tours would like to purchase at least
50 boats and would like to purchase the same
number from Sleekboat as from Racer to maintain
goodwill. At the same time, Floataway Tours wishes
to have a total seating capacity of at least 200.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
58
 Product Mix

Formulate this problem as a linear program.

Maximum Expected
Boat Builder Cost Seating Daily Profit
Speedhawk Sleekboat $6000 3 $ 70
Silverbird Sleekboat $7000 5 $ 80
Catman Racer $5000 2 $ 50
Classy Racer $9000 6 $110

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
59
 Product Mix

 Define the Decision Variables

x1 = number of Speedhawks ordered
x2 = number of Silverbirds ordered
x3 = number of Catmans ordered
x4 = number of Classys ordered

 Define the Objective Function

Maximize total expected daily profit:
Max (Expected daily profit per unit)
x (Number of units)
Max 70x1 + 80x2 + 50x3 + 110x4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
60
 Product Mix

 Define the constraints

Spend no more than $420,000:
(1) 6000x1 + 7000x2 + 5000x3 + 9000x4 < 420,000

Purchase at least 50 boats:

(2) x1 + x2 + x3 + x4 > 50

Number of boats from Sleekboat must equal

number of boats from Racer:
(3) x1 + x2 = x3 + x4 or x1 + x2 - x3 - x4 = 0

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
61
 Product Mix

 Define the constraints (continued)

Capacity at least 200:
(4) 3x1 + 5x2 + 2x3 + 6x4 > 200

Non-negativity of variables:
xi > 0, for i = 1, 2, 3, 4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
62
 Product Mix

 Computer Output

Objective Function Value = 5040.000

Variable Value Reduced Cost
x1 28.000 0.000
x2 0.000 2.000
x3 0.000 12.000
x4 28.000 0.000
Constraint Slack/Surplus Shadow Value
1 0.000 0.012
2 6.000 0.000
3 0.000 -2.000
4 52.000 0.000

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
63
 Product Mix

 Solution Summary
• Purchase 28 Speedhawks from Sleekboat.
• Purchase 28 Classy’s from Racer.
• Total expected daily profit is $5,040.00.
• The minimum number of boats was exceeded by 6
(surplus for constraint #2).
• The minimum seating capacity was exceeded by 52
(surplus for constraint #4).

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
64
 Blending Problem

Ferdinand Feed Company receives four raw

grains from which it blends its dry pet food. The pet
food advertises that each 8-ounce packet meets the
minimum daily requirements for vitamin C, protein
and iron. The cost of each raw grain as well as the
vitamin C, protein, and iron units per pound of each
grain are summarized on the next slide.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
65
 Blending Problem

Vitamin C Protein Iron

Grain Units/lb Units/lb Units/lb Cost/lb
1 9 12 0 .75
2 16 10 14 .90
3 8 10 15 .80
4 10 8 7 .70

Ferdinand is interested in producing the 8-ounce

mixture at minimum cost while meeting the minimum
daily requirements of 6 units of vitamin C, 5 units of
protein, and 5 units of iron.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
66
 Blending Problem

 Define the decision variables

xj = the pounds of grain j (j = 1,2,3,4)
used in the 8-ounce mixture
 Define the objective function
Minimize the total cost for an 8-ounce mixture:
MIN .75x1 + .90x2 + .80x3 + .70x4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
67
 Blending Problem

 Define the constraints

Total weight of the mix is 8-ounces (.5 pounds):
(1) x1 + x2 + x3 + x4 = .5
Total amount of Vitamin C in the mix is at least 6 units:
(2) 9x1 + 16x2 + 8x3 + 10x4 > 6
Total amount of protein in the mix is at least 5 units:
(3) 12x1 + 10x2 + 10x3 + 8x4 > 5
Total amount of iron in the mix is at least 5 units:
(4) 14x2 + 15x3 + 7x4 > 5
Non-negativity of variables: xj > 0 for all j

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
68
 Blending Problem

 Computer Output

Objective Function Value = 0.406

Variable Value Reduced Cost
X1 0.099 0.000
X2 0.213 0.000
X3 0.088 0.000
X4 0.099 0.000

Thus, the optimal blend is about .10 lb. of grain 1, .21 lb.
of grain 2, .09 lb. of grain 3, and .10 lb. of grain 4. The
mixture costs Frederick’s 40.6 cents.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
69
 End of Chapter 4

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
70