BUSINESS DECISION
ANALYSIS
CH 2: INTRODUCTION TO OPTIMIZATION AND LINEAR PROGRAMMING
COURSE INSTRUCTOR: HUSNAIN TARIQ
APPLICATION OF MATHEMATICAL
OPTIMIZATION
• Determining product mix: Most manufacturing companies
can make various products. However, each product usually
requires different amounts of raw materials and labor.
Similarly, the profit generated by the products varies.
• Manufacturing.
• Routing and Logistics.
• Financial planning.
Optimization Is Everywhere
CHARACTERISTICS OF OPTIMIZATION
PROBLEMS
Each example involves one or more decisions that must be made:
• How many of each product should be produced?
• Which hole should be drilled next?
• How much product should be shipped from each warehouse to the various retail
locations?
• How much money should an individual withdraw each year from various retirement
accounts?
• Alternatives available to the decision maker.
• Goal or objective that the decision-maker considers when deciding which course of
action is best
EXPRESSING OPTIMIZATION
PROBLEMS MATHEMATICALLY
• Decisions: The decisions in an optimization problem are often
represented in a mathematical model by the symbols X1, X2, …,
Xn.
EXAMPLES
• These variables might represent the quantities of different
products the production manager can choose to produce.
• They might represent the amount of different pieces of
merchandise to ship from a warehouse to a certain store.
EXPRESSING OPTIMIZATION
PROBLEMS MATHEMATICALLY
• Constraints: The constraints in an optimization problem can
be represented in a mathematical model in several ways.
• Three general ways of expressing the possible constraint
relationships in an optimization problem are:
• A less than or equal to constraint: f(X1, X2, …, Xn) < b
• A greater than or equal to constraint: f(X1, X2, …, Xn) > b
• An equal to constraint: f(X1, X2, …, Xn) = b
‘b’ represents
EXPRESSING OPTIMIZATION
PROBLEMS MATHEMATICALLY
• For example, we might use a less than or equal to constraint
to ensure that the total labor used in producing a given
number of products does not exceed the amount of available
labor.
• We might use a greater than or equal to constraint to ensure
that the total amount of money withdrawn from a person’s
retirement accounts is at least the minimum amount
required.
EXPRESSING OPTIMIZATION
PROBLEMS MATHEMATICALLY
• Objective: The objective function identifies some function of the decision variables that the
decision-maker wants to either MAXimize or MINimize
• The objective in an optimization problem is represented mathematically by an objective
function in the general format: MAX (or MIN): f(X1, X2, …, Xn)
• f1(X1, X2, …, Xn) < b
• f2(X1, X2, …, Xn) > b
• f3(X1, X2, …, Xn) = b
• For MAX fmax for MIN fmin and then write the function
Examples
• Total profit associated with a product mix
• Total cost of transporting merchandise
STEPS IN FORMULATING AN LINER
PROGRAMMING (LP) MODEL
1. Understand the problem
2. Identify the decision variables
3. State the objective function as a linear combination of the decision
variables
In our example, Howie earns $350 on each Aqua-Spa (X1) he sells and
$300 on each Hydro-Lux (X2) he sells. Thus, Howie’s objective of
maximizing the profit he earns is stated mathematically as MAX: 350X1
+ 300X2
Here X is being to identify the products
STEPS IN FORMULATING AN LP
MODEL
4. State the constraints as linear combinations of the decision variables
In our example, Howie faces three major constraints. Because only 200 pumps are
available and each hot tub requires one pump, Howie cannot produce more than a
total of 200 hot tubs. This restriction is stated mathematically as 1X1 + 1X2 ≤ 200
Another restriction Howie faces is that only 1,566 labor hours are available during
the next production cycle. Because each Aqua-Spa he builds (each unit of X1)
requires 9 labor hours and each Hydro-Lux (each unit of X2) requires 6 labor hours,
the constraint on the number of labor hours is stated as 9X1+6X2 ≤ 1,566
STEPS IN FORMULATING AN LP
MODEL
Example
The final constraint specifies that only 2,880 feet of tubing is
available for the next production cycle. Each Aqua-Spa (each
unit of X1) requires 12 feet of tubing, and each Hydro-Lux
(each unit of X2) requires 16 feet of tubing.
Elaborate in a mathematical equation.
STEPS IN FORMULATING AN LP
MODEL
5. Identify any upper or lower bounds on the decision
variables
In our example, there are simple lower bounds of zero on the
variables X1 and X2 because it is impossible to produce a
negative number of hot tubs. Therefore, the following two
constraints also apply to this problem:
X1 ≥ 0
X2 ≥ 0
SOLVING LP PROBLEMS: INTUITIVE
APPROACH
SOLVING LP PROBLEMS: INTUITIVE
APPROACH
