MERC 113

Advanced Optimization Theory and Method

Formative Test and Problem Solving Exercises [Answer Guide]

T.I.P. Manila Graduate School

Formative Test [Non-Graded]
Problem 1. A small construction firm specializes in building and selling single-family homes. The
firm offers two basic types of houses, model A and model B. Model A houses require 4,000 labor
hours, 2 tons of stone, and 2,000 board feet of lumber. Model B houses require 10,000 labor
hours, 3 tons of stone, and 2,000 board feet of lumber. Due to long lead times for ordering supplies
and the scarcity of skilled and semi-skilled workers in the area, the firm will be forced to rely on its
present resources for the upcoming building season. It has 400,000 hours of labor, 150 tons of
stone, and 200,000 boards. feet of lumber. What mix of model A and B houses should the firm
construct if model A yields a profit of Php3M per unit and model B yields Php6,000M per unit?
Assume that the firm will be able to sell all the units it builds.

Instructions: 1) Identify if the problem is a Maximization or Minimization case; 2) Identify the

following: Decision Variables, Objective Function, Constraints (formulate), and state the Non-
negativity constraints.
Guide to Solving the Formative Test
1. Identify if the problem is a Maximization or Minimization case: Maximization Problem
2. Identify the following: Decision Variables, Objective Function, Constraints (formulate), and state the
Non-negativity constraints.

a) Decision Variables: Let X = Number of Model A; and Let Y = Number of Model B

b) Objective Function: Maximum Profit is Z Value of X Php3,000,00A+Y Php6,000,000
c) Constraints:
● Labor Hours: 4,000A+10,000B ≤ 400,000 (Man Power)
● Stone: 2A+3B ≤150 (Material)
● Wood: 2,000A+2,000B≤200,000 (Material)
d) Non-negativity constraint: X, Y >= 0
Formative Test [Non-Graded]
Problem 2. The MixNuts Company produces two products: Almond Nuts and Salted Peanuts. The production
process for each product is similar in that both require a certain number of hours of manufacturing work and a
certain number of labor hours in the packaging department. Almonds take 4 hours of manufacturing work and 2
hours in the packaging. Each Salted Peanuts requires 3 hours of manufacturing work and 1 hour in packaging.
During the current manufacturing period, 240 hours of the manufacturing hour are available, and 100 hours of
packaging time are available. Each Almond sold yields a profit of Php7.00; each Salted Peanuts produced can
be sold for a Php5.00 profit. MixNut's problem is to determine the best possible combination of Almonds and
Salted Peanuts to manufacture to reach the maximum profit. This product-mix situation can be formulated as a
linear programming problem, showing the linear model.

Instructions: 1) Formulate the problem using both perspectives: Maximization and Minimization; 2) Identify the
following: Decision Variables, Objective Function, Constraints (formulate), and state the Non-negativity
constraints; 3) Using the Maximization perspective, solve the problem graphically (graphical solution and/or use
of systems of the equation to determine the solution for a blending problem).
Guide to Solving the Formative Test
1. Formulate the problem using both perspectives: Maximization and Minimization
2. Identify the following: Decision Variables, Objective Function, Constraints (formulate), and state the
Non-negativity constraints;

P1 Maximization Perspective
a) Decision Variables
b) Objective Function
c) Constraints
d) Non-negativity

P2 Minimization Perspective
a) Decision Variables
b) Objective Function
c) Constraints
d) Non-negativity

3. Using the Maximization perspective, solve the problem graphically (graphical solution and/or use of
systems of the equation to determine the solution for a blending problem).
P1 Maximization Perspective

a) Decision Variables: Let X = Number of Almond Nuts; and Let Y = Number of Salted Peanuts
b) Objective Function : Maximize the Z Value =7x+5y
c) Constraints
● Manufacturing hours: 4x+3y≤240 (Process/Method)
● Packaging hours: 2x+y≤100 (Process/Method)

d) Non-negativity: x ≥0, and y ≥0

P2 Minimization Perspective

a) Decision Variables: Let X = Manufacturing Hours; and Let Y = Packaging Hours

b) Objective Function : Maximize the Z Value =240x+100y
c) Constraints
● Almond Nuts: 4x+2y => Php 7.00 (Money)
● Salted Peanuts Nuts: 3x+y => Php 5.00 (Money)

d) Non-negativity: x ≥0, and y ≥0

Solving the problem using graphical solution, from the the maximization perspective.
Problem Solving Exercises [Required Submission]
Problem 1. A company manufactures two types of anti-dandruff shampoo: Tea Tree Extract and Ginger Extract. The Tea
Tree solution contains 2 liters of tea tree oil and 3 liters of floral fragrance. The Ginger variant is composed of 3 liters of
ginger extract and 1.5 liters of bamboo fragrance. The company has a very optimistic management that hopes to get the
maximum profit for the organization. Each sachet of Tea Tree variant sell Php2.80, and the Ginger Variant sell for
Php2.00 per sachet. However, the company has limited resources.
● First, the company can buy only up to 400,000 liters of extracts (i.e., tea tree and ginger) each month at Php0.20
per liter. It can buy only up to 300,000 liters of fragrance per month at Php0.50 per liter.
● Second, a special machinery is required to make Tea Tree Variant, and this machine has a capacity of 90,000
sachet per month.
● Third, the variable cost of blending and packing the shampoo is Php0.25 per sachet of for Tea Tree and Php0.20
for Ginger.

Suppose you are the manager of the company, and your salary is based on sales, what would be the ideal number of
products to produce to maximize the company profit?

Instructions: 1) Identify if the problem is a Maximization or Minimization case; 2) Identify the following: Decision
variables, Objective Function, Constraints (formulate), and state the non-negativity constraints; 3) Formulate the problem
using the opposite perspective (e.g., if maximization, use other perspective in fomulation; 4) Solve using Corner Point
Method; 5) Solving using Systems of Equation and compare results with Corner Point Method; 6) Show graphical
solution properly labeled with all the elements).
 Tea Tree (P1) Ginger (P2) Remarks

Sales price per package Php 2.80 Php 2.00

Raw Materials (RM)

● RM1 Extract 2 liters 3 liters Operating Cost = RM1 +

RM2 + Variable Cost
(process/mixing)
● RM2 Fragrance 3 liters 1.5 liters

● Variable Cost (per liter) Php 0.25 Php 0.20

● Purchasing Cost (per liter) Php 0.20 Php 0.50

Capacity (Availability)

❏ Production 90,000.00 max machine capacity for sachet per month

❏ Extract per month 400,000.00 max availability per month (in liters)

❏ Fragrance per month 300,000.00 max availability per month (in liters)
 Tea Tree (P1) Ginger (P2) Remarks

Sales price per package Php 2.80 Php 2.00

Raw Materials (RM)

● RM1 Extract 2 liters 3 liters Operating Cost = RM1 +

RM2 + Variable Cost
(process/mixing)
● RM2 Fragrance 3 liters 1.5 liters

● Variable Cost (per liter) Php 0.25 Php 0.20

● Purchasing Cost (per liter) Php 0.20 Php 0.50

Profit Less (OP) Php 2.35 Php 1.30

Capacity (Availability)

❏ Production 90,000.00 max machine capacity for sachet per month

❏ Extract per month 400,000.00 max availability per month (in liters)

❏ Fragrance per month 300,000.00 max availability per month (in liters)
1. Identify if the problem is a Maximization or Minimization case: Maximization Problem
2. Identify the following: Decision variables, Objective Function, Constraints (formulate), and state the non-negativity
constraints
a) Objective Function : Maximize the Z Value : Php 2.35X1 + Php 1.30X2
b) Decision Variables : X1 = Number of Tea Tree, and X2 = Ginger
c) Constraints
● Extract (Material) - 2X1 + 3X2 < = 400,000.00
● Fragrance (Material) - 3x1 + 1.5 X2 < = 300,000.00
● Production Capacity (Method) - X1 + X2 < = 90,000.00

d) Non-negativity: X1, X2 > = 0

1. Formulate the problem using the opposite perspective (e.g., if maximization, use other perspective in formulation

a) Objective Function : Minimize the Z Value : 400,000 X1 + 300,000 X2 + 90,000 X3

b) Decision Variables :
c) Constraints :
● 2X1 + 3X2 + X3 > = Php 2.35 (Money)
● 3X1 + 1.5 X1 + X3 > = Php 1.30 (Money)

d) Non-negativity: X1, X2, X3 > = 0

Problem Solving Exercises [Required Submission]
Problem 2. Fruitas Inc. Philippines, the country's leading company that makes fresh fruit shakes on
the spot is planning to venture on the use of exotic fruits. Similarly, the alternatives are to be tested in
the following countries: Russia, Namibia, Belarus. The cost of investment in Millions of Php is
presented in the table. It is important to note however, that Russians are not very keen on Berry flavor.
This was highlighted in the market study commissioned by the company. If you are the International
Brand Ambassador of the company, what strategy will you suggest? Make a recommendation for an
optimistic management team, a pessimistic executive management committee, and suggest which
strategy will give Fruitas less regret. Briefly explain each of your proposed alternative.
Recommendations:

1. For the Optimistic management team, I would recommend investing on Berry from Belarus
considering it has the highest sale potential with an investment of 12080Mas shown in the
investment table

2. For the Pessimistic executive management committee, I would recommend investing on

Apricot from Russia considering it has the lowest investment cost to give maximum sales as
shown in the investment table.

3. For less Regret, I suggest investing on Cantaloupe from Belarus considering it has the
highest among the least investment or MinMax as shown in the Regret Table.

4. Recommendation: Based on the results of the evaluation of alternatives, I would

recommend to take the Pessimistic approach of investing in Apricot from Russia considering
the investment cost of 4075M is safest as it is near the average of the maximum investment
cost of 12080M and minimum investment cost of 1705M.